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Privatizing disability insurance

Arthur Seibold, Sebastian Seitz and Sebastian Siegloch ()

No 22-010, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

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 cohorts, we find that despite significant crowding-in effects, overall private DI take-up remains modest. Private DI tends to be concentrated among high-income, high-education and low-risk individuals. We do not find any evidence of adverse selection on unpriced risk. Finally, we estimate individual insurance valuations via a revealed preferences approach, a key input for welfare calculations. We find that observed willingness-to-pay of many individuals is low, such that providing coverage partly via a private DI market 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; privatization; welfare; microdata (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-eur, nep-ias and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:22010

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