Forward-looking moral hazard in social insurance

Marcus Eliason (), Per Johansson and Martin Nilsson

Labour Economics, 2019, vol. 60, issue C, 84-98

Abstract: This study tests for forward-looking moral hazard in the sickness insurance system by exploiting a 1991 reform in Sweden. The replacement rate was reduced for short absences but not for long absences, which introduced a potential future cost of returning to work. Using this exogenous variation in the replacement rate and controlling for dynamic selection, we find that the potential future cost of returning to work decreased the outflow from long-term sickness absence. This finding suggests that long-term sickness absentees respond to economic incentives and are forward-looking, which highlights the importance of taking forward-looking behavior into account when designing and evaluating social insurance programs.

Keywords: Dynamic incentives; Forward-looking behavior; Moral hazard; Sickness absence; Sickness insurance (search for similar items in EconPapers)
JEL-codes: H55 I12 I13 J22 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:60:y:2019:i:c:p:84-98

DOI: 10.1016/j.labeco.2019.06.003

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