Risk-sharing Mechanism Research Articles

Optimal Static Hedging of Variable Annuities with Volatility-Dependent Fees

Variable annuities (VAs) and other long-term equity-linked insurance products are typically difficult to hedge in the incomplete markets. A state-dependent fee tied with market volatility for VAs is designed to contribute the risk-sharing mechanism between policyholders and insurers. Different from prior research, we discuss several aspects on a fair valuation, fee-rate determination and hedging with volatility-dependent fees from the perspective of a VA hedger. A method of efficient hedging strategy as a benchmark compared to other strategies is developed in the stochastic volatility setting. We illustrate this method in guaranteed minimum maturity benefits (GMMBs), but it is also applicable to other equity-linked insurance contracts.

Health Insurance Business in India: Progress, Issues and Way Forward

India’s healthcare system is witnessing increased medical inflation, which is outpacing per capita Gross Domestic Product growth. With increased lifestyle diseases and, most recently, a pandemic caused by COVID-19, the cost of financing healthcare has become a huge issue, especially when government spending on healthcare is so low. In light of this, this article emphasises the significance of privately purchased, that is voluntary health insurance in addition to the government-sponsored health insurance programme for the vast uninsured population. Starting with the history of health insurance in India, this article examines premium growth, underwriting profit, investment income, net profit, incurred claims ratio and other metrics. Following that, the difficulties in the health insurance industry and their breadth are examined through a review of literature and recent newspaper reporting. The key issues resulting in negative underwriting experience are the inefficient risk pooling and unregulated private health care costs. A risk-sharing mechanism with an indemnification model must be implemented for better cost management to eliminate value fragmentation. Finally, ideas are given for resolving the challenges and increasing the market share of the health insurance company, with a focus on long-term business models such as managed care.

Do Smallholder Farmers Need Paddy Microtakaful Scheme?

Smallholder farmers play a crucial role in the agricultural sector of developing nations, but they are exposed to a number of risks that could result in sizable financial losses. As an alternative risk-sharing mechanism that can assist smallholder farmers in effectively managing their risks, microtakaful has been introduced. The article intends to propose the Paddy Microtakaful Scheme (PMTS) exclusively for smallholding farmers in Malaysia. This protection is significant for smallholder farmers to provide sustainable economic growth and food security. A few key areas must be observed to understand the necessity of having the scheme. An overview of Malaysia’s agriculture sector is presented focusing on land use, employment, and production of food crops among the smallholder farmers. Risks and perils in agriculture, including natural disasters, pests, and crop diseases, are also outlined. The role of PMTS is also discussed, highlighting its many benefits to smallholder farmers. A survey was carried out among 275 smallholder farmers to gain information on their demographic profiles, farming activities as well as their willingness to contribute to the PMTS. The information is vital in developing a suitable and well-accepted PMTS, specifically among smallholder farmers in Malaysia. The PMTS framework presented in this report is based on a hypothetical product that contains four main attributes: 1) types of crops to be insured, 2) type of coverage, 3) contribution or the price, and 4) sum assured/benefit. The scheme includes coverage for natural disasters, pests, and crop diseases with the ultimate objective to reduce the vulnerability of the global food system. Further research will consist of the execution of a pilot program formulated to evaluate the effectiveness of PMTS. With the government’s three-way coordination and active roles, the smallholder farmers and Takaful company will become the essential constituents in realizing the PMTS.

A stochastic model of group wealth responses to insurance mechanisms in low-income communities

This study addresses the group-based nature of financial vulnerability in the low-income environment. Adopting a highly flexible stochastic dissemination model, we assess the impact of insurance on the resilience of a low-income group to wealth shocks. For this purpose, the transient wealth of a group of interacting uninsured and insured agents is considered. The model is extended to capture four types of transaction events: external arrivals, internal redistributions, wealth losses and premium payments. Risk-sharing mechanisms, mitigating the impact of financial losses that are otherwise uninsured, are widespread in low-income communities. Our modelling of redistribution events captures the wealth transactions associated with these mechanisms, alongside the purchase of commodities and services from within the group. Through this set-up, we present a method for incorporating the high level of wealth interaction characteristic of the low-income setting in the assessment of the effectiveness of insurance. The model is underlined by an exogenously evolving Markov background process that represents the state of the economy. To analyse the distribution of wealth jointly with the state of the background process, a system of coupled differential equations for the joint transient distribution of agent wealth is derived, and is reduced to a linear system of differential equations through consideration of the moments of agent wealth. Sensitivity analysis is performed to establish the impact of the system's structure and stochastic dynamics on the wealth of the group. The probability of falling below the poverty line is then determined through application of a normal approximation and the impact of insurance in reducing this probability considered under varying levels of subsidisation.

A comprehensive evaluation of private sector investment decisions for sustainable water supply systems using a fuzzy-analytic hierarchy process: A case study of Ha Nam province in Vietnam

This study examined the factors that affect the private sectors' willingness to invest in rural water supply. The study applied a mixed methods approach, including an overview of relevant studies, expert consultation, exploratory factor analysis using SPSS software, and a fuzzy-analytic hierarchy process to identify and evaluate the factors applicable to Ha Nam province in Vietnam. Some factors were distinguished that are significant to private investors’ rural water supply investment decisions, including tax incentive policy, policies to support preferred access to loans and credit, a state risk-sharing mechanism, a mechanism to adjust water price, community support, high community demand for clean water, and input water quality. In addition, the study constructed an investment attractiveness index to evaluate the attractiveness of private sector investment for two typical rural water supply projects in Ha Nam province. This index can be used as a basis for the government to design appropriate incentives to attract investment from private investors and construct an investment attractiveness map.

Revenue and Risk Sharing Mechanism Design in Agriculture Supply Chains Considering the Participation of Agricultural Cooperatives

Uncertain yield and demand often result in unbalanced revenue and risk sharing among agriculture supply chain (ASC) members. Agricultural cooperatives help smallholder farmers enhance their bargaining power via revenue and risk sharing and are a significant bridge between farmers and retailers. Therefore, this study aimed to design a contractual mechanism considering a cooperative’s participation in the coordination of ASCs that face random yield and demand in pursuit of risk and benefit equivalence. We first compared two- and three-echelon decentralized ASCs with a centralized system, and the results indicate that the cooperative’s participation is conducive to redistributing profit between the retailer and farmer. As a verified revenue-sharing (RS) contract cannot coordinate a two-echelon ASC under uncertain yield and demand, we developed a double revenue-sharing (DRS) contract, which has been demonstrated to coordinate an ASC system with the cooperative’s participation. A numerical analysis was conducted to show that the cooperative can influence profit distribution among the upstream and downstream members via wholesale prices. Therefore, equivalence of risk and benefit is realized and fairly allocated among the members under the DRS contract, which is of great significance to the ASC system’s stable and sustainable development.

Leveraging the positives from the pandemic to strengthen infectious disease care in low-income and middle-income countries

Leveraging the positives from the pandemic to strengthen infectious disease care in low-income and middle-income countries

Like Cooking Plov with Hoja Nasreddin: Recalculating Financial Transfers to Tajikistan, 1971–1989

This article recalculates financial flows to and from the Tajik SSR during the 1970s and 1980s. Using tax and export revenue from cotton production largely unregistered in Soviet financial accounts, it provides an estimate for the annual financial outflow of revenue from the Tajik SSR. This is then compared to the annual ‘subsidy’ sent to the republic. In practice, the article concludes that financial transfers to the Tajik SSR were largely equivalent to the revenue accrued from its cotton production, calling into question the discourse of subsidisation of Soviet Central Asia. In this sense, the article suggests an overlooked risk-sharing mechanism built into late Soviet redistributive financial transfers.

Digital Money Options for the BRICS

The article is time relevant, since a number of countries, such as China and Russia, started pilot testing their digital currencies in 2020, due to the necessity of contactless means of payment during the coronavirus pandemic. The purpose of this research is to revisit the phenomenon of the virtual money. What is new here is that this is one of the first papers concentrated on a digital currency for a group of countries. The article offers an econometric representation of how the BRICS (Brazil, Russia, India, China and South Africa) currency may be utilized when hypothetically coined on a crypto-exchange of the BRICS monetary union. This research contains data condensed in a table and graphical form. The major idea of this article is that only a digital unit of account for a group of countries such as the BRICS, unlike a cryptocurrency, may help create a sustainable financial stability environment and solid monetary infrastructure. The author conducts a detailed analysis of a digital currency compared to a cryptocurrency. The hypothesis is that a shared digital currency for the BRICS may promote financial risk diversification through a risk-sharing mechanism. The author’s results include a formula that may provide a way of calculating the quantity of the BRICS’ digital currency, as well as a simulated representation of a would-be BRICS currency’s dynamics. The practical significance of this paper is that the proposed BRICS digital currency can find its use in investment portfolios as an asset. This asset may provide stable returns and benefit from the growth prospects of the BRICS economies as ones of the most rapidly developing markets in the world. Potential investors in the currency of the union may profit from the abundance of natural resources of Brazil, Russia, and South Africa in terms of energy and other minerals offered at the best world market prices, as well as the technology, labor, and durable goods of India and China priced at competitive valuations. The assets expressed in the BRICS currency have the potential of growing over the years, so a dollar invested today may turn an enormous return on investment within this decade, unlike stagnant markets in Europe, Japan, and the US. The author proves that a cryptocurrency cannot serve a shared currency function for the BRICS, and it stresses the very significance of circulating the shared digital currency in particular. Finally, the author simulates the dynamics of the BRICS’ digital currency and proposes an approach to calculating its exchange rate relative to some of the leading currencies in the international monetary system.

Evidence on optimal risk allocation models for Indonesian geothermal projects under PPP contracts

This study explores risk allocation in Indonesia's public-private partnerships for geothermal energy development. Such activity involves significant upfront investment, but no definitive and transparent risk-sharing mechanisms that suitably incentivise the private sector have emerged in the literature. In the study, we develop an evidence-based framework founded on principal-agency theorising that suggests an optimal allocation of risk between the public and private parties in these arrangements. A Delphi survey is employed to identify the views of a group of experts, with the evidence pointing to a clear pattern in identifying high-risk factors and optimal risk-sharing arrangements. Suggested risk-bearing levels for the Indonesian government range between 100% (for legal and regulatory exposures) to 0% in an operational and maintenance risk context. Risks relating to resource and exploration, finance and credit, as well as field development and construction issues, are viewed as being optimally shared between the parties, with the expert panel suggesting that the public sector should retain more exposure where high criticality risk factors exist. The proposed risk allocations reflect both evidenced outcomes and prior contention regarding the risks around geothermal investments and thereby provide the potential for developing meaningful schematics that enable Indonesia to exploit the resources concerned more fully.

A risk-sharing mechanism for multi-region catastrophe insurance with government subsidies

Catastrophe insurance can play an important role in compensating disaster losses and mitigating catastrophe risk, but interest in participating is usually mismatched between insurance companies and disaster-affected regions. High-risk regions are more willing to purchase catastrophe insurance, while insurance companies are reluctant to provide it. In low-risk regions, the situation is reversed. We address this problem by developing a multi-region catastrophe insurance method that disperses risk among high- and low-risk regions, expanding coverage across a broader area and ensuring profitability with greater stability for the insurance company. In this study, we introduce a risk-sharing mechanism that determines participating regions' contributions to the total premium by accounting for their disaster risk profiles and their economic status. Government subsidies are introduced to account for those regions that cannot fully afford their allocated premium. The proposed insurance system's performance is analyzed in practice, using the Yunnan Province as a test case, and the results show that multi-region catastrophe insurance can benefit both disaster-affected regions and the insurance company, and that government subsidies promote the implementation of this system.

Strategizing risk information sharing framework among supply chain partners for financial performance

ABSTRACT Organisations are often reluctant and sometimes postpone sharing risk-related information with their partners. This paper aims to develop and analyse the risk-sharing model to explain the factors contributing to the timely and accurate sharing of risk-related information within the supply chain network. The data are collected from 199 supply chain experts working in different manufacturing companies through a structured questionnaire and then analysed using structural equation modelling. The result of this study reflects that strategic supply chain relationship (SCR) has a significant impact on risk information sharing (RIS) and external information integration (EII) while having an insignificant impact on internal information integration (III). On the other hand, supply chain technology internalisation (SCT) significantly impacts EII, III and risk-sharing mechanism (RSM). This study is one of the few empirical studies conducted to understand the antecedents of risk-sharing mechanisms in any supply chain network to enhance visibility and increase financial performance using the relational and integrational approaches.

Do non-damaging earthquakes shake mortgage lenders' risk perception?

This study examines how banks respond to earthquakes that convey seismic risk salience but do not cause damage, i.e., noticeable non-damaging earthquakes (NNDEs). Using evidence from California, we find loans more likely to be denied or sold after increased NNDEs. Banks with fewer assets, more diversified branching markets, or stronger sales capability relied more on securitization to transfer the perceived seismic risk. We show evidence that banks likely learned about the NNDEs through personal experience and local news. The effects of NNDEs persisted up to three years. Meanwhile, the NNDEs only caused moderate and temporary collateral devaluation but did not increase the observable default risk. Thus, banks' responses most likely resulted from the increased risk salience of future damaging earthquakes during the mortgage term. Our findings call for reevaluations of the heuristics in banks' risk-perception updating and have implications for designing more efficient disaster risk-sharing mechanisms in the financial market.

Risk-sharing and consumption-smoothing patterns in the US and the Euro Area: A comprehensive comparison

We compare the fraction of asymmetric shocks smoothed in the United States and in the Euro Area through risk-sharing channels. By building on a novel dataset, the paper addresses key comparability issues in the literature. Our findings confirm that total risk sharing is higher in the United States and that capital markets are a more powerful shock-absorption channel than in the Euro Area, but less so than previously reported. We also provide a detailed comparison of risk-sharing mechanisms over time and in the face of longer-lasting shocks. Our results suggest that the financial crisis was associated with a reduction in risk sharing through capital markets in the United States, while during the sovereign debt crisis counter-cyclical fiscal policies allowed for higher consumption smoothing in the Euro Area. Finally, both in the United States and in the Euro Area risk sharing tends to decline as shocks become more persistent.

Identification and Evaluation of Risks Encountered in BOT Type Transportation Projects in Turkey: Case Studies

Yap-İşlet-Devret modeli (YİD) ile kamu hizmetlerinin sağlanmasında dünyada öncü ülkelerden olan Türkiye’de, giderek artan kentsel nüfusa bağlı olarak özellikle ulaştırma yatırımlarına olan ihtiyaç artmaktadır. YİD modelleri, bünyesinde projenin başarısını etkileyen çok sayıda riski barındırmaktadır. Bu risklerin tanımlanması; tanımlanan risklere yönelik yanıtların geliştirilerek doğru risk paylaşımlarının yapılabilmesi için önem arz etmektedir. Çalışmada, Türkiye’de YİD modeliyle gerçekleştirilmiş üç güncel ulaştırma projesinde karşılaşılan risklerin tanımlanması ve tartışılması amaçlanmıştır. Çalışmanın sonucunda; üç projede ortak olarak, finansman temini ile ilgili ve fizibilite çalışmalarının yetersizliğinden kaynaklanan problemler nedeniyle projelerin kapsamında ve tarafların risk paylaşımlarında değişikliklere gitmek durumunda kalındığı anlaşılmıştır. Yaşanan problemlere rağmen projelerin kararlılıkla hayata geçirilmesi, ülkede YİD projelerine yönelik güçlü bir politik desteğin olduğunu göstermektedir. Ancak, YİD projeleri için en kritik risk faktörü olan “öngörülen piyasa talebine ulaşılamaması”, bu projelerde de söz konusu olmuştur. Yol projelerinde, geçiş ücretleri ve farklı alternatiflerin bulunması talebi etkilemiş olup; projeler tamamlandıktan kısa süre sonra ortaya çıkan Covid-19 salgınına bağlı dünya genelindeki kapanmaların, beklenen gelirlerin sağlanamamasının esas nedeni olduğu düşünülmektedir. Türkiye’deki YİD ulaştırma projelerinin fizibilite aşamasında çevresel, teknik ve ekonomik açılardan kapsamlı olarak değerlendirilmesi; yapım ve işletme süresince karşılaşılan problemlerin minimuma indirilmesinde temel teşkil etmektedir.

Cost-effectiveness of brentuximab vedotin in treating increased risk of relapse/progression of classical hodgkin lymphoma patients post autologous stem cell transplant

Objective: Hodgkin lymphoma patients who relapsed/progressed early after autologous stem cell transplant (ASCT) usually have poor prognoses. Results from clinical trials have demonstrated Brentuximab vedotin (BV)’s significant clinical effectiveness for consolidation therapy after ASCT for patients who have high risk of relapse/progress. An economic evaluation study for Vietnamese CHL patients is necessary and can provide useful evidence for policymakers. Methods: A multi-stage economic evaluation model consisting of two partitioned survival models was used to estimate incurring costs and effectiveness from health insurance perspective for two hypothetical groups of Vietnamese adult CHL patients who have high risk of relapse/progression, one received standard care and the other received BV consolidation plus standard care as post-ASCT care. Necessary healthcare services were identified via Ministry of Health guidelines and Vietnamese clinical opinions. Efficacy parameters were taken from published systematic review and randomized controlled trials results. Model costs and utility inputs were adapted for Vietnamese context via relevant published literature, guidelines, regulations, and clinical opinions. Model cycle of 1 week and life-time horizon was used. Discounting rate of 3% was applied for cost and effectiveness. Results: Consolidation with BV post-ASCT was estimated to increase treatment cost by 654,502,745 VND per patient, increased 1.295 life years and 2.153 QALYs. Incremental cost-effectiveness ratios were estimated at 505,465,854 VND/LY and 304,045,395 VND/QALY. Conclusions: BV consolidation was not cost-effective compared to 3GDP threshold, however, with an appropriate risk-sharing mechanism, the intervention can be cost-effective, improve patients access to the effective treatment and maintain equity in healthcare.

Research on the influence mechanism of university-enterprise collaboration: Evidence From five southern coastal provinces in China

Taking university-enterprise collaborative innovation in five southern coastal provinces of China as subjects, empirical research is implemented by constructing a theoretical model of the effects of interface resource integration, interface conflict management, interface connection mechanisms, and enterprise absorptive capacity on the university-enterprise collaborative innovation performance with the partial least squares structural equation modeling and fuzzy-set qualitative comparative analysis. A total of 245 valid questionnaires were collected from five coastal provinces in south China. The research results show that the interface resource integration, interface connection mechanisms, and enterprise absorptive capacity has direct significant positive impacts on the collaborative innovation performance. Interface conflict management has no significant impact on school-enterprise collaborative innovation performance. Moreover, the interface connection mechanism acts as an intermediary. Therefore, it is suggested that university-enterprise should integrate resources with complementing, interacting, and sharing resources; construct the profit and risk-sharing mechanism, communication and trust mechanism, and organizational learning mechanism.

Research on the influence mechanism of university-enterprise collaboration: Evidence From five southern coastal provinces in China.

Taking university-enterprise collaborative innovation in five southern coastal provinces of China as subjects, empirical research is implemented by constructing a theoretical model of the effects of interface resource integration, interface conflict management, interface connection mechanisms, and enterprise absorptive capacity on the university-enterprise collaborative innovation performance with the partial least squares structural equation modeling and fuzzy-set qualitative comparative analysis. A total of 245 valid questionnaires were collected from five coastal provinces in south China. The research results show that the interface resource integration, interface connection mechanisms, and enterprise absorptive capacity has direct significant positive impacts on the collaborative innovation performance. Interface conflict management has no significant impact on school-enterprise collaborative innovation performance. Moreover, the interface connection mechanism acts as an intermediary. Therefore, it is suggested that university-enterprise should integrate resources with complementing, interacting, and sharing resources; construct the profit and risk-sharing mechanism, communication and trust mechanism, and organizational learning mechanism.

Impact of the COVID-19 control measures on rural households’ access to social capital for mobilizing resources in Eastern Ethiopia

Physical distancing and mobility restriction measures are used as central components of the COVID 19 response globally. In Ethiopia, the measures have been implemented against a complex social structure wherein social support practices (in the form of social capital) and daily social interactions are embedded. However, the mechanism of how such measures interact with various social capital practices and shape household access to various types of resources during the pandemic are less understood. This study examined the way the COVID-19 pandemic and protective measures shaped smallholder farmers’ access to social capital for mobilizing resources during the pandemic. A total of 176 households were randomly selected for the quantitative survey. In addition, 25 key informant interviews were collected. Results show that prolonged physical distancing and mobility restrictions imposed to control the health impact of the pandemic have disrupted normal patterns of social interactions and resource sharing between households. The imposed measures significantly decreased households’ access to food, information, credit/loan, labor, psychological support, and agricultural inputs and extension services. The study strongly suggests that the public health measure imposed for the COVID-19 prevention and control affect the proper functioning of a society's social capital framework, thereby, reducing poor households’ ability to deal with socioeconomic crises and uncertainties. This implies that ongoing as well as future responses to the pandemic should adapt and integrate crisis management measures with the local risk-sharing mechanisms such as indigenous mutual support frameworks and processes. Harnessing inclusive social protection programs and building strong rural financial infrastructure and agricultural service delivery can help vulnerable households cope with shocks, improve the effectiveness of pandemic responses and facilitate post-crisis recovery.

Vague Pension Future: Empirical Evidence from the Israeli Radical Privatized Market

We examine the future benefits of the Israeli privatized pension system, which is considered as a model of transition to funded pension systems worldwide. This research is based on an extensive database obtained from one of the largest traditional private funds in the market. The results paint a concerning picture regarding the adequacy of benefits and quality of life in old age. Israel’s radical privatized pension model signals a warning to other nations. We show that, even with high returns, most individuals cannot handle the magnitude of financial and labor risks accumulated during their career and retirement. We recommend more balanced government intervention as well as the use of risk-sharing mechanisms such as providing minimum pension guarantee and strengthening the unfunded social security pillar.