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The impact of private participation and countervailing information on disability costs: evidence from Chile

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  • JAMES, ESTELLE
  • EDWARDS, ALEJANDRA COX
  • IGLESIAS, AUGUSTO

Abstract

Many social security systems face high and escalating disability costs. In Chile's new system, the disability assessment procedure includes participation by private pension funds (AFPs) and insurance companies, who finance the benefit, have a direct pecuniary interest in controlling costs and are able to pursue this objective by helping to set criteria and providing countervailing information. We hypothesize that these procedures and incentives will keep costs low, by cutting the incidence of successful claims. Using the Cox proportional hazard model and a retrospective sample of new and old-system affiliates (EPS, 2002), we find that disability hazard rates are only 20–35% as high in the new system as in the old traditional system. Analysis of mortality rates suggests that the new system has accurately targeted individuals with more severe medical problems.

Suggested Citation

  • James, Estelle & Edwards, Alejandra Cox & Iglesias, Augusto, 2009. "The impact of private participation and countervailing information on disability costs: evidence from Chile," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(3), pages 291-320, July.
    • Handle: RePEc:cup:jpenef:v:8:y:2009:i:03:p:291-320_00
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    Cited by:

    1. Claudio Agostini & Eduardo Saavedra & Manuel Willington, 2012. "Economies of Scale and Merger Efficiencies: Empirical Evidence from the Chilean Pension Funds Market," Working Papers wp_027, Adolfo Ibáñez University, School of Government.
    2. Reyes, Gonzalo, 2010. "Market design for the provision of social insurance: the case of disability and survivors insurance in Chile," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(3), pages 421-444, July.
    3. Alejandra Cox Edwards & Estelle James, 2010. "Impact of Social Security Reform on Labor Force Participation Rates of Pensioners and Nonpensioners: Evidence from Chile," Journal of Human Capital, University of Chicago Press, vol. 4(2), pages 130-172.

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