Disability Risk, Disability Insurance and Life Cycle Behavior

Hamish Low and Luigi Pistaferri

No 15962, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper provides a life-cycle framework for weighing up the insurance value of disability benefits against the incentive cost. Within this framework, we estimate the life-cycle risks that individuals face in the US, as well as the parameters governing the disability insurance program, using indirect inference and longitudinal data on consumption, disability status, disability insurance receipt, and wages. We use our estimates to characterize the economic effects of disability programs and to consider how policy reforms would affect behaviour and standard measures of household welfare. Because of high levels of false rejections associated with the screening problem, average household welfare increases as the program becomes less strict, despite the worsening incentives that this implies. Incentives for false applications are reduced by reducing generosity and increasing reassessments and these policies also increase average household welfare, despite the worse insurance implied.

JEL-codes: D91 H53 H55 J26 (search for similar items in EconPapers)
Date: 2010-05
Note: EFG LS PE
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Citations: View citations in EconPapers (32)

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Working Paper: Disability risk, disability insurance and life cycle behavior (2010)
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