We use longitudinal data on consumption, disability status, disability insurance recipiency, and earnings to measure the welfare loss of disability shocks. We decompose earnings risk into shocks due to the emergency of disability and shocks to general productivity. We then examine the issue of optimality of the DI program, accounting for moral hazard issues having to do with healthy people applying for DI benefits in response to permanent negative shocks to their general productivity.
More papers in 2007 Meeting Papers from Society for Economic Dynamics Address: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA Contact information at EDIRC. Series data maintained by Christian Zimmermann ().