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Econometrics Illustrated, with Applications from Insurance-Research Awards

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  • Butler Richard J

    (Department of Economics, Brigham Young University, Provo, USA)

Abstract

The linear regression model is the dominant tool employed in applied risk and insurance research. Based on my 2016 APRIA lecture at Chengdu, China, I illustrate the simple geometry of the linear regression model, as well as some standard results from it: omitted variable bias (OVB), classical measurement error (CME), simultaneous equation models (SEM), and instrumental variable estimation. Instrumental variable estimation solves OVB, CME, and SEM problems by constructing similar triangles to retrieve consistent estimates. I apply these tools by estimating the determinants of the Witt and Mehr awards given annually for Journal of Risk and Insurance articles, as two examples. The Witt vs. Mehr awards also contrasts short-term scholarly recognition (Witt) versus long-term scholarly recognition (Mehr). The comments made here apply to other paper awards, such as those presented by the Asian Pacific Journal of Risk and Insurance. I also present a simple index function based on the classical Gini index (hence, this new index is denoted as the regression gini index, RGI) useful for comparing two regression models, and apply this to explain the empirical difference between the determinants of the Witt and Mehr awards.

Suggested Citation

  • Butler Richard J, 2017. "Econometrics Illustrated, with Applications from Insurance-Research Awards," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 11(2), pages 1-21, July.
    • Handle: RePEc:bpj:apjrin:v:11:y:2017:i:2:p:21:n:4
    DOI: 10.1515/apjri-2017-0002
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    References listed on IDEAS

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    3. Richard J. Butler & Barbara L. Wilson & William G. Johnson, 2012. "A modified measure of health care disparities applied to birth weight disparities and subsequent mortality," Health Economics, John Wiley & Sons, Ltd., vol. 21(2), pages 113-126, February.
    4. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769, December.
    5. Richard D. Phillips & J. David Cummins & Franklin Allen, 1996. "Financial Pricing of Insurance in the Multiple Line Insurance Company," Center for Financial Institutions Working Papers 96-09, Wharton School Center for Financial Institutions, University of Pennsylvania.
    6. Eeckhoudt, L. & Gollier, C., 1998. "Which Shape for the Cost Curve of Risk?," Papers 98.490, Toulouse - GREMAQ.
    7. Michael Braun & Alexander Muermann, 2004. "The Impact of Regret on the Demand for Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(4), pages 737-767, December.
    8. Grosen, Anders & Løchte Jørgensen, Peter, 2001. "Life Insurance Liabilities at Market Value," Finance Working Papers 01-4, University of Aarhus, Aarhus School of Business, Department of Business Studies.
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