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A Model of Income Insurance and Social Norms

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  • Assar Lindbeck
  • Mats Persson

Abstract

A large literature on ex ante moral hazard in income insurance emphasizes that the individual can affect the probability of an income loss by choice of lifestyle and hence, the degree of risk-taking. The much smaller literature on moral hazard ex post mainly analyzes how a “moral hazard constraint” can make the individual abstain from fraud (“mimicking”). The present paper instead presents a model of moral hazard ex post without a moral hazard constraint; the individual's ability and willingness to work is represented by a continuous stochastic variable in the utility function, and the extent of moral hazard depends on the generosity of the insurance system. Our model is also well suited for analyzing social norms concerning work and benefit dependency.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1675.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1675

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Keywords: moral hazard; sick pay insurance; labor supply; asymmetric information;

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References

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  1. Daniel Eek & Klas Rikner, 2005. "What determines people's decisions whether or not to report sick?," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(5), pages 533-543.
  2. Dionne, Georges, 1984. "Search and Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 357-67, June.
  3. E. Glaeser & B. Sacerdote & Jose A. Scheinkman, 2003. "The Social Multiplier," Levine's Working Paper Archive 506439000000000130, David K. Levine.
  4. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
  5. de Meza, David & Webb, David C, 2001. "Advantageous Selection in Insurance Markets," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 249-62, Summer.
  6. Whinston, Michael D., 1983. "Moral hazard, adverse selection, and the optimal provision of social insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 22(1), pages 49-71, October.
  7. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 90(4), pages 630-49, November.
  8. P. A. Diamond & J. A. Mirrlees, 1977. "A Model of Social Insurance With Variable Retirement," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 210, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Allen, Steven G, 1981. "An Empirical Model of Work Attendance," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 77-87, February.
  10. Brown, Sarah & Sessions, John G, 1996. " The Economics of Absence: Theory and Evidence," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 10(1), pages 23-53, March.
  11. Barmby, Tim & Sessions, John G & Treble, John G, 1994. " Absenteeism, Efficiency Wages and Shirking," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 96(4), pages 561-66.
  12. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 537-79, May.
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Cited by:
  1. Lindbeck, Assar & Palme, Mårten & Persson, Mats, 2007. "Social Interaction and Sickness Absence," Working Paper Series, Research Institute of Industrial Economics 725, Research Institute of Industrial Economics.
  2. Lindbeck, Assar, 2005. "Sustainable Social Spending," Working Paper Series, Research Institute of Industrial Economics 646, Research Institute of Industrial Economics.
  3. Lindbeck, Assar & Persson, Mats, 2008. "A Continuous Model of Income Insurance," Seminar Papers, Stockholm University, Institute for International Economic Studies 756, Stockholm University, Institute for International Economic Studies.
  4. Lindbeck, Assar & Persson, Mats, 2010. "A Continuous Theory of Income Insurance," Seminar Papers, Stockholm University, Institute for International Economic Studies 763, Stockholm University, Institute for International Economic Studies.
  5. Kroft, Kory, 2008. "Takeup, social multipliers and optimal social insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 92(3-4), pages 722-737, April.
  6. Alessandro Balestrino, 2006. "Tax Avoidance, Endogenous Social Norms, and the Comparison Income Effect," CESifo Working Paper Series 1758, CESifo Group Munich.
  7. Lindbeck, Assar, 2006. "The Welfare State -- Background, Achievements, Problems," Working Paper Series, Research Institute of Industrial Economics 662, Research Institute of Industrial Economics.

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