An empirical examination of risk equalisation in a regulated community rated health insurance market

Despite universal access entitlements to the public healthcare system in Ireland, over half the population is covered by voluntary private health insurance. The market operates on the basis of community rating, open enrolment and lifetime cover. A set of minimum benefits also exists, and two risk equalisation schemes have been put in place but neither was implemented. These schemes have proved highly controversial. To date, the debate has primarily consisted of qualitative arguments. This study adds a quantitative element by analysing a number of pertinent issues. A model of a community rated insurance market is developed, which shows that community rating can only be maintained in a competitive market if all insurers in the market have the same risk profile as the market overall. This has relevance to the Irish market in the aftermath of a Supreme Court decision to set aside risk equalisation. Two reasons why insurers’ risk profiles might differ are adverse selection and risk selection. Evidence is found of the existence of both forms of selection in the Irish market. A move from single rate community rating to lifetime community rating in Australia had significant consequences for take-up rates and the age profile of the insured population. A similar move has been proposed in Ireland. It is found that, although this might improve the stability of community rating in the short term, it would not negate the need for risk equalisation. If community rating were to collapse then risk rating might result. A comparison of the Irish, Australian and UK health insurance markets suggests that community rating encourages higher take-up among older consumers than risk rating. Analysis of Irish hospital discharge figures suggests that this yields significant savings for the Irish public healthcare system. This thesis has implications for government policy towards private health insurance in Ireland.

Financial modelling with 2-EPT probability density functions

The class of all Exponential-Polynomial-Trigonometric (EPT) functions is classical and equal to the Euler-d’Alembert class of solutions of linear differential equations with constant coefficients. The class of non-negative EPT functions defined on [0;1) was discussed in Hanzon and Holland (2010) of which EPT probability density functions are an important subclass. EPT functions can be represented as ceAxb, where A is a square matrix, b a column vector and c a row vector where the triple (A; b; c) is the minimal realization of the EPT function. The minimal triple is only unique up to a basis transformation. Here the class of 2-EPT probability density functions on R is defined and shown to be closed under a variety of operations. The class is also generalised to include mixtures with the pointmass at zero. This class coincides with the class of probability density functions with rational characteristic functions. It is illustrated that the Variance Gamma density is a 2-EPT density under a parameter restriction. A discrete 2-EPT process is a process which has stochastically independent 2-EPT random variables as increments. It is shown that the distribution of the minimum and maximum of such a process is an EPT density mixed with a pointmass at zero. The Laplace Transform of these distributions correspond to the discrete time Wiener-Hopf factors of the discrete time 2-EPT process. A distribution of daily log-returns, observed over the period 1931-2011 from a prominent US index, is approximated with a 2-EPT density function. Without the non-negativity condition, it is illustrated how this problem is transformed into a discrete time rational approximation problem. The rational approximation software RARL2 is used to carry out this approximation. The non-negativity constraint is then imposed via a convex optimisation procedure after the unconstrained approximation. Sufficient and necessary conditions are derived to characterise infinitely divisible EPT and 2-EPT functions. Infinitely divisible 2-EPT density functions generate 2-EPT Lévy processes. An assets log returns can be modelled as a 2-EPT Lévy process. Closed form pricing formulae are then derived for European Options with specific times to maturity. Formulae for discretely monitored Lookback Options and 2-Period Bermudan Options are also provided. Certain Greeks, including Delta and Gamma, of these options are also computed analytically. MATLAB scripts are provided for calculations involving 2-EPT functions. Numerical option pricing examples illustrate the effectiveness of the 2-EPT approach to financial modelling.

Empirical analysis and improved modelling of natural gas demand in Ireland

Countries across the world are being challenged to decarbonise their energy systems in response to diminishing fossil fuel reserves, rising GHG emissions and the dangerous threat of climate change. There has been a renewed interest in energy efficiency, renewable energy and low carbon energy as policy‐makers seek to identify and put in place the most robust sustainable energy system that can address this challenge. This thesis seeks to improve the evidence base underpinning energy policy decisions in Ireland with a particular focus on natural gas, which in 2011 grew to have a 30% share of Ireland’s TPER. Natural gas is used in all sectors of the Irish economy and is seen by many as a transition fuel to a low-carbon energy system; it is also a uniquely excellent source of data for many aspects of energy consumption. A detailed decomposition analysis of natural gas consumption in the residential sector quantifies many of the structural drives of change, with activity (R2 = 0.97) and intensity (R2 = 0.69) being the best explainers of changing gas demand. The 2002 residential building regulations are subject to an ex-post evaluation, which using empirical data finds a 44 ±9.5% shortfall in expected energy savings as well as a 13±1.6% level of non-compliance. A detailed energy demand model of the entire Irish energy system is presented together with scenario analysis of a large number of energy efficiency policies, which show an aggregate reduction in TFC of 8.9% compared to a reference scenario. The role for natural gas as a transition fuel over a long time horizon (2005-2050) is analysed using an energy systems model and a decomposition analysis, which shows the contribution of fuel switching to natural gas to be worth 12 percentage points of an overall 80% reduction in CO2 emissions. Finally, an analysis of the potential for CCS in Ireland finds gas CCS to be more robust than coal CCS for changes in fuel prices, capital costs and emissions reduction and the cost optimal location for a gas CCS plant in Ireland is found to be in Cork with sequestration in the depleted gas field of Kinsale.

Urbanization effects on welfare and income diversification strategies of peri-urban farm households in Tigray, Northern Ethiopia: An empirical analysis

Urban areas in many developing countries are expanding rapidly by incorporating nearby subsistence farming communities. This has a direct effect on the consumption and production behaviours of the farm households but empirical evidence is sparse. This thesis investigated the effects of rapid urbanization and the associated policies on welfare of subsistence farm households in peri-urban areas using a panel dataset from Tigray, Ethiopia. The study revealed a number of important issues emerging with the rapid urban expansion. Firstly, private asset holdings and consumption expenditure of farm households, that have been incorporated into urban administration, has decreased. Secondly, factors that influence the farm households’ welfare and vulnerability depend on the administration they belong to, urban or rural. Gender and literacy of the household head have significant roles for the urban farm households to fall back into and/or move out of poverty. However, livestock holding and share of farm income are the most important factors for rural households. Thirdly, the study discloses that farming continues to be important source of income and income diversification is the principal strategy. Participation in nonfarm employment is less for farm households in urban than rural areas. Adult labour, size of the local market and past experience in the nonfarm sector improves the likelihood of engaging in skilled nonfarm employment opportunities. But money, given as compensation for the land taken away, is not crucial for the household to engage in better paying nonfarm employments. Production behaviour of the better-off farm households is the same, regardless of the administration they belong to. However, the urban poor participate less in nonfarm employment compared to the rural poor. These findings signify the gradual development of urban-induced poverty in peri-urban areas. In the case of labour poor households, introducing urban safety net programmes could improve asset productivity and provide further protection.