Privatizing Disability Insurance

Arthur Seibold, Sebastian Seitz and Sebastian Siegloch

No 9979, CESifo Working Paper Series from CESifo

Abstract: Public disability insurance (DI) programs in many countries face pressure to reduce their generosity in order to remain sustainable. In this paper, we investigate the welfare effects of giving a larger role to private insurance markets in the face of public DI cuts. Exploiting a unique reform that abolished one part of the German public DI system for younger workers, we find that despite significant crowding-in effects, overall private DI take-up remains modest. We do not find any evidence of adverse selection on unpriced risk. On the contrary, private DI tends to be concentrated among high-income, high-education and low-risk individuals. Using a revealed preferences approach, we estimate individual DI valuations, a key input for welfare calculations. We find that observed willingness-to-pay of many individuals is low, such that providing DI partly via a private insurance market with choice improves welfare. However, we show that distributional concerns as well as individual risk misperceptions can provide grounds for justifying a full public DI mandate.

Keywords: disability insurance; social insurance; mandate; privatization; risk-based selection; welfare (search for similar items in EconPapers)
JEL-codes: G22 G52 H55 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-pbe and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Privatizing Disability Insurance (2022)
Working Paper: Privatizing Disability Insurance (2022)
Working Paper: Privatizing Disability Insurance (2022)
Working Paper: Privatizing disability insurance (2022)
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