Ponpoje Porapakkarm | University of Macau (original) (raw)

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Papers by Ponpoje Porapakkarm

This paper considers the role that information heterogeneity can play in generating wealth inequa... more This paper considers the role that information heterogeneity can play in generating wealth inequality. We solve a model where households face both aggregate and idiosyncratic shocks to returns and wages under two assumptions about information -fully-informed (FI) economies have agents who observe all states while partially-informed (PI) economies have agents that must rely on the Kalman filter to extract estimates of the states based on observed prices. We find that the PI economy has higher aggregate activity (output, consumption, investment) and larger fluctuations in output and investment. Quantitatively, we find that the most important factor is the gap between the PI agents' beliefs about the state of the world today and the true state; the other two factors, the heterogeneity of forecasts tomorrow and the higher risk faced by PI agents, generate only small changes in behavior.

A common assumption in incomplete market literature is that all house- holds share the same and f... more A common assumption in incomplete market literature is that all house- holds share the same and full (complete) information about the economy. The assumption also implies that all households share the same expectations about the future of the economy. However, this assumption and its implication may be in contrast with the reality. In this paper, the author examines two ques- tions. First, how much does a household gain from having this full information? Second, what key factors afiect the dynamics of the model under incomplete information? The framework of the study is an overlapping generation economy with an incomplete market and incomplete information. Households observe only their own wages and common returns on savings. In addition, there is a noisy public information about the aggregate states; thus very precise public information restores the full information assumption. In my calibrated model, having full information yields very small welfare gains; less than $10 of annual consumption. In addition, the resulting dynam- ics of the model depend on how much households know about the states of the economy. Basically, the dynamics of the model are driven by both the real- izations and households' expectations about the underlying states. Under full information, both realizations and expectations are the same by assumption. This is not true under incomplete information. The author emphasizes two key factors afiecting the quantitative results of the model under incomplete infor- mation: intertemporal elasticity of substitution, and persistence of aggregate and idiosyncratic shocks. These results are important for future research to quantify the efiects of incomplete information in an incomplete market.

Two key components of the upcoming health reform are a reorganization of the individual health in... more Two key components of the upcoming health reform are a reorganization of the individual health insurance market and an increase in income redistribution in the economy. Which component contributes more to the welfare outcome of the reform? We address this question by constructing a general equilibrium life cycle model that incorporates both medical expenses and labor income risks. We replicate the key features of the current health insurance system in the U.S. and calibrate the model using the Medical Expenditures Panel Survey dataset. We find that the reform decreases the number of uninsured more than four times. It also brings significant welfare gains equivalent to almost one percent of the annual consumption. However, these welfare gains mostly come from the redistributive measures embedded in the reform. If the reform only reorganizes the individual market, introduces individual mandates but does not include any income-based transfers, the welfare gains are much smaller. This result is mostly driven by the fact that most uninsured people have low income. High burdens of health insurance premiums for this group are relieved disproportionately more by income-based measures than by the new rules in the individual market.

One of the major problems of the U.S. health insurance market is that it leaves individuals expos... more One of the major problems of the U.S. health insurance market is that it leaves individuals exposed to reclassification risk. Reclassification risk arises because the health conditions of individuals evolve over time, while a typical health insurance contract only lasts for one year. A change in the health status can lead to a significant change in the health insurance premium. We study how costly this reclassification risk is for the welfare of consumers. More specifically, we use a general equilibrium model to quantify the implications of introducing guaranteed renewable contracts into the economy calibrated to replicate the key features of the health insurance system in the U.S. Guaranteed renewable contracts are private insurance contracts that can provide protection against reclassification risk even in the absence of consumer commitment or government intervention. We find that though guaranteed renewable contracts provide a good insurance against reclassification risk, the welfare effects from introducing this type of contracts are small. In other words, the presence of reclassification risk does not impose large welfare losses on consumers. This happens because some institutional features in the current U.S. system substitute for the missing explicit contracts that insure reclassification risk. In particular, a good protection against reclassification risk is provided through employer-sponsored health insurance and government means-tested transfers.

One of the major problems of the U.S. health insurance market is that it leaves individuals expos... more One of the major problems of the U.S. health insurance market is that it leaves individuals exposed to reclassification risk. Reclassification risk arises because the health conditions of individuals evolve over time, while a typical health insurance contract only lasts for one year. A change in the health status can lead to a significant change in the health insurance premium. We study how costly this reclassification risk is for the welfare of consumers. More specifically, we use a general equilibrium model to quantify the implications of introducing guaranteed renewable contracts into the economy calibrated to replicate the key features of the health insurance system in the U.S. Guaranteed renewable contracts are private insurance contracts that can provide protection against reclassification risk even in the absence of consumer commitment or government intervention. We find that though guaranteed renewable contracts provide a good insurance against reclassification risk, the welfare effects from introducing this type of contracts are small. In other words, the presence of reclassification risk does not impose large welfare losses on consumers. This happens because some institutional features in the current U.S. system substitute for the missing explicit contracts that insure reclassification risk. In particular, a good protection against reclassification risk is provided through employer-sponsored health insurance and government means-tested transfers.

This paper considers the role that information heterogeneity can play in generating wealth inequa... more This paper considers the role that information heterogeneity can play in generating wealth inequality. We solve a model where households face both aggregate and idiosyncratic shocks to returns and wages under two assumptions about information -fully-informed (FI) economies have agents who observe all states while partially-informed (PI) economies have agents that must rely on the Kalman filter to extract estimates of the states based on observed prices. We find that the PI economy has higher aggregate activity (output, consumption, investment) and larger fluctuations in output and investment. Quantitatively, we find that the most important factor is the gap between the PI agents' beliefs about the state of the world today and the true state; the other two factors, the heterogeneity of forecasts tomorrow and the higher risk faced by PI agents, generate only small changes in behavior.

A common assumption in incomplete market literature is that all house- holds share the same and f... more A common assumption in incomplete market literature is that all house- holds share the same and full (complete) information about the economy. The assumption also implies that all households share the same expectations about the future of the economy. However, this assumption and its implication may be in contrast with the reality. In this paper, the author examines two ques- tions. First, how much does a household gain from having this full information? Second, what key factors afiect the dynamics of the model under incomplete information? The framework of the study is an overlapping generation economy with an incomplete market and incomplete information. Households observe only their own wages and common returns on savings. In addition, there is a noisy public information about the aggregate states; thus very precise public information restores the full information assumption. In my calibrated model, having full information yields very small welfare gains; less than $10 of annual consumption. In addition, the resulting dynam- ics of the model depend on how much households know about the states of the economy. Basically, the dynamics of the model are driven by both the real- izations and households' expectations about the underlying states. Under full information, both realizations and expectations are the same by assumption. This is not true under incomplete information. The author emphasizes two key factors afiecting the quantitative results of the model under incomplete infor- mation: intertemporal elasticity of substitution, and persistence of aggregate and idiosyncratic shocks. These results are important for future research to quantify the efiects of incomplete information in an incomplete market.

Two key components of the upcoming health reform are a reorganization of the individual health in... more Two key components of the upcoming health reform are a reorganization of the individual health insurance market and an increase in income redistribution in the economy. Which component contributes more to the welfare outcome of the reform? We address this question by constructing a general equilibrium life cycle model that incorporates both medical expenses and labor income risks. We replicate the key features of the current health insurance system in the U.S. and calibrate the model using the Medical Expenditures Panel Survey dataset. We find that the reform decreases the number of uninsured more than four times. It also brings significant welfare gains equivalent to almost one percent of the annual consumption. However, these welfare gains mostly come from the redistributive measures embedded in the reform. If the reform only reorganizes the individual market, introduces individual mandates but does not include any income-based transfers, the welfare gains are much smaller. This result is mostly driven by the fact that most uninsured people have low income. High burdens of health insurance premiums for this group are relieved disproportionately more by income-based measures than by the new rules in the individual market.

One of the major problems of the U.S. health insurance market is that it leaves individuals expos... more One of the major problems of the U.S. health insurance market is that it leaves individuals exposed to reclassification risk. Reclassification risk arises because the health conditions of individuals evolve over time, while a typical health insurance contract only lasts for one year. A change in the health status can lead to a significant change in the health insurance premium. We study how costly this reclassification risk is for the welfare of consumers. More specifically, we use a general equilibrium model to quantify the implications of introducing guaranteed renewable contracts into the economy calibrated to replicate the key features of the health insurance system in the U.S. Guaranteed renewable contracts are private insurance contracts that can provide protection against reclassification risk even in the absence of consumer commitment or government intervention. We find that though guaranteed renewable contracts provide a good insurance against reclassification risk, the welfare effects from introducing this type of contracts are small. In other words, the presence of reclassification risk does not impose large welfare losses on consumers. This happens because some institutional features in the current U.S. system substitute for the missing explicit contracts that insure reclassification risk. In particular, a good protection against reclassification risk is provided through employer-sponsored health insurance and government means-tested transfers.

One of the major problems of the U.S. health insurance market is that it leaves individuals expos... more One of the major problems of the U.S. health insurance market is that it leaves individuals exposed to reclassification risk. Reclassification risk arises because the health conditions of individuals evolve over time, while a typical health insurance contract only lasts for one year. A change in the health status can lead to a significant change in the health insurance premium. We study how costly this reclassification risk is for the welfare of consumers. More specifically, we use a general equilibrium model to quantify the implications of introducing guaranteed renewable contracts into the economy calibrated to replicate the key features of the health insurance system in the U.S. Guaranteed renewable contracts are private insurance contracts that can provide protection against reclassification risk even in the absence of consumer commitment or government intervention. We find that though guaranteed renewable contracts provide a good insurance against reclassification risk, the welfare effects from introducing this type of contracts are small. In other words, the presence of reclassification risk does not impose large welfare losses on consumers. This happens because some institutional features in the current U.S. system substitute for the missing explicit contracts that insure reclassification risk. In particular, a good protection against reclassification risk is provided through employer-sponsored health insurance and government means-tested transfers.