The Political Economy of the Disability Insurance. Theory and Evidence of Gubernatorial Learning from Social Security Administration Monitoring

Radha Iyengar and Giovanni Mastrobuoni ()

No 70, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: The dramatic rise in the disability insurance (DI) roles in the last 20 years has been the subject of much controversy in both popular and academic circles. While, the relationship between DI and labor force participation has been the subject of a growing literature, the mechanism of this transition from employment to DI remains unclear. We hypothesize that one mechanism is the state-level administration of the program which creates a classic principal-agent problem. This paper analyzes the impact of continuing conflict of interests for Disability Determination Services agencies—between Social Security Administration standards and state gubernatorial political interests — interacted with the increased demand for disability insurance as an alternative for low-skilled works during the period of 1982 to 2000. We find evidence that multi-term governors allow a greater fraction of applicants than do first term governors. We then develop a model that illustrates how these differences can be due to the type of monitoring conducted by the Social Security Administration. We provide additional evidence supporting this hypothesis in the form of sub-group analysis by economic and political constraints. Overall, we find evidence that the monitoring system is counter-productive and encourages over-use of the disability insurance program to serve political ends.

Keywords: Disability insurance; principal-agent; social security administration; monitoring (search for similar items in EconPapers)
JEL-codes: G22 H55 I18 I38 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2008, Revised 2010
New Economics Papers: this item is included in nep-ias and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: The Political Economy of the Disability Insurance. Theory and Evidence of Gubernatorial Learning from Social Security Administration Monitoring (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:70

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