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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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Bibliographic Info

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. De Meza, D. & Webb, D.C., 2000. "Advantageous Selection in Insurance Market," Discussion Papers 0007, Exeter University, Department of Economics.
  2. Edward L. Glaeser & Bruce I. Sacerdote & Jose A. Scheinkman, 2002. "The Social Multiplier," Harvard Institute of Economic Research Working Papers 1968, Harvard - Institute of Economic Research.
  3. Dionne, G., 1980. "Search and Insurance," Cahiers de recherche 8101, Universite de Montreal, Departement de sciences economiques.
  4. Barmby, Tim & Sessions, John G & Treble, John G, 1994. " Absenteeism, Efficiency Wages and Shirking," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(4), pages 561-66.
  5. 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.
  6. 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, vol. 90(4), pages 630-49, November.
  7. Daniel Eek & Klas Rikner, 2005. "What determines people's decisions whether or not to report sick?," Applied Economics, Taylor & Francis Journals, vol. 37(5), pages 533-543.
  8. Whinston, Michael D., 1983. "Moral hazard, adverse selection, and the optimal provision of social insurance," Journal of Public Economics, Elsevier, vol. 22(1), pages 49-71, October.
  9. P. A. Diamond & J. A. Mirrlees, 1977. "A Model of Social Insurance With Variable Retirement," Working papers 210, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. 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, vol. 112(2), pages 537-79, May.
  11. Brown, Sarah & Sessions, John G, 1996. " The Economics of Absence: Theory and Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 10(1), pages 23-53, March.
  12. 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.
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Citations

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Cited by:
  1. Lindbeck, Assar & Persson, Mats, 2010. "A Continuous Theory of Income Insurance," Seminar Papers 763, Stockholm University, Institute for International Economic Studies.
  2. Alessandro Balestrino, 2009. "Tax avoidance, endogenous social norms, and the comparison income effect," CHILD Working Papers wp15_09, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  3. Assar Lindbeck, 2005. "Sustainable Social Spending," CESifo Working Paper Series 1594, CESifo Group Munich.
  4. Lindbeck, Assar & Palme, Mårten & Persson, Mats, 2009. "Social Interaction and Sickness Absence," Research Papers in Economics 2009:4, Stockholm University, Department of Economics.
  5. Kroft, Kory, 2008. "Takeup, social multipliers and optimal social insurance," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 722-737, April.
  6. Lindbeck, Assar & Persson, Mats, 2008. "A Continuous Model of Income Insurance," Seminar Papers 756, Stockholm University, Institute for International Economic Studies.
  7. Lindbeck, Assar, 2006. "The Welfare State -- Background, Achievements, Problems," Working Paper Series 662, Research Institute of Industrial Economics.

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