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The Political Economy of the Disability Insurance. Theory and Evidence of Gubernatorial Learning from Social Security Administration Monitoring

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  • Radha Iyengar
  • Giovanni Mastrobuoni

Abstract

The dramatic rise in the disability insurance (DI) roles in the last 20 years has been the subject of much controversy in both popular and academic circles. While, the relationship between DI and labor force participation has been the subject of a growing literature, the mechanism of this transition from employment to DI remains unclear. We hypothesize that one mechanism is the state-level administration of the program which creates a classic principal-agent problem. This paper analyzes the impact of continuing conflict of interests for Disability Determination Services agencies—between Social Security Administration standards and state gubernatorial political interests — interacted with the increased demand for disability insurance as an alternative for low-skilled works during the period of 1982 to 2000. We find evidence that multi-term governors allow a greater fraction of applicants than do first term governors. We then develop a model that illustrates how these differences can be due to the type of monitoring conducted by the Social Security Administration. We provide additional evidence supporting this hypothesis in the form of sub-group analysis by economic and political constraints. Overall, we find evidence that the monitoring system is counter-productive and encourages over-use of the disability insurance program to serve political ends.

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Bibliographic Info

Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 70.

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Length: 47 pages
Date of creation: 2008
Date of revision: 2010
Handle: RePEc:cca:wpaper:70

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Keywords: Disability insurance; principal-agent; social security administration; monitoring;

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References

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  1. John Bound, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," NBER Working Papers 2816, National Bureau of Economic Research, Inc.
  2. Parsons, Donald O, 1991. "The Health and Earnings of Rejected Disability Insurance Applicants: Comment," American Economic Review, American Economic Association, vol. 81(5), pages 1419-26, December.
  3. Timothy Besley & Anne Case, 1993. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," NBER Working Papers 4575, National Bureau of Economic Research, Inc.
  4. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
  5. Hugo Benitez-Silva & Moshe Buchinsky & John Rust, 2004. "How Large are the Classification Errors in the Social Security Disability Award Process?," NBER Working Papers 10219, National Bureau of Economic Research, Inc.
  6. David H. Autor & Mark G. Duggan, 2003. "The Rise In The Disability Rolls And The Decline In Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 157-205, February.
  7. Timothy Besley & Anne Case, 2003. "Political Institutions and Policy Choices: Evidence from the United States," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 7-73, March.
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Cited by:
  1. Laun, Tobias & Wallenius, Johanna, 2013. "Social Insurance and Retirement: A Cross-Country Perspective," Working Paper Series, Center for Fiscal Studies 2013:6, Uppsala University, Department of Economics.
  2. Johanna Wallenius & Tobias Laun, 2013. "The Role of Social Insurance Programs in Accounting for Cross-Country Differences in Retirement Behavior," 2013 Meeting Papers 221, Society for Economic Dynamics.

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