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A Model of Income Insurance and Social Norms

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  • Lindbeck, Assar

    ()
    (Institute for International Economic Studies, Stockholm University)

  • Persson, Mats

    ()
    (Institute for International Economic Studies, Stockholm University)

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 (“mimickingâ€). 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 Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 742.

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Length: 29 pages
Date of creation: 14 Feb 2006
Date of revision:
Handle: RePEc:hhs:iiessp:0742

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Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
Phone: +46-8-162000
Fax: +46-8-161443
Web page: http://www.iies.su.se/
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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. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. 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.
  6. E. Glaeser & B. Sacerdote & Jose A. Scheinkman, 2003. "The Social Multiplier," Levine's Working Paper Archive 506439000000000130, David K. Levine.
  7. 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, vol. 25(2), pages 357-67, June.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
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Citations

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Cited by:
  1. Assar Lindbeck, 2006. "Sustainable social spending," International Tax and Public Finance, Springer, vol. 13(4), pages 303-324, August.
  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 & Mats Persson, 2010. "A Continuous Theory of Income Insurance," CESifo Working Paper Series 3097, CESifo Group Munich.
  4. Kroft, Kory, 2008. "Takeup, social multipliers and optimal social insurance," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 722-737, April.
  5. Lindbeck, Assar, 2006. "The Welfare State -- Background, Achievements, Problems," Working Paper Series 662, Research Institute of Industrial Economics.
  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 & Palme, Mårten & Persson, Mats, 2009. "Social Interaction and Sickness Absence," Research Papers in Economics 2009:4, Stockholm University, Department of Economics.

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