Option Value and Dynamic Programming Model Estimates of Social Security Disability Insurance Application Timing

Richard Burkhauser, J. Butler and Gulcin Gumus

No 941, IZA Discussion Papers from IZA Network @ LISER

Abstract: This paper develops dynamic structural models - an option value model and a dynamic programming model - of the Social Security Disability Insurance (SSDI) application timing decision. We estimate the time to application from the point at which a health condition first begins to affect the kind or amount of work that a currently employed person can do. We use Health and Retirement Study (HRS) and restricted access Social Security earnings data for estimation. Based on tests of both in-sample and out-of-sample predictive accuracy, our option value model performs better than both our dynamic programming model and our reduced form hazard model.

Keywords: option value; Health and Retirement Survey; Social Security Disability Insurance; dynamic programming (search for similar items in EconPapers)
JEL-codes: H31 H55 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2003-11
New Economics Papers: this item is included in nep-dge and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published - revised version published as 'Dynamic programming model estimates of Social Security Disability Insurance application timing" in Journal of Applied Econometrics , 2004, 19 (6), 671-685

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