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A Continuous Theory of Income Insurance

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Author Info

  • Lindbeck, Assar

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

  • Persson, Mats

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

Abstract

In this paper we treat an individual’s health as a continuous variable, in contrast to the traditional literature on income insurance, where it is regularly treated as a binary variable. This is not a minor technical matter; in fact, a continuous treatment of an individual’s health sheds new light on the role and functioning of income insurance and makes it possible to capture a number of real-world phenomena that are not easily captured in binary models. In particular, moral hazard is not regarded as outright fraud, but as a gradual adjustment of the willingness to go to work when income insurance is available. Further, the model can easily encompass phenomena such as administrative rejection of claims and the role of social norms. It also gives a rich view of the desirability of insurance in the first place.

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Bibliographic Info

Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 763.

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Length: 47 pages
Date of creation: 01 Jun 2010
Date of revision:
Handle: RePEc:hhs:iiessp:0763

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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; disability insurance; sick pay; work absence; social norms;

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  1. Mikhail Golosov & Aleh Tsyvinski, 2004. "Designing Optimal Disability Insurance: A Case for Asset Testing," NBER Working Papers 10792, National Bureau of Economic Research, Inc.
  2. Assar Lindbeck & Mats Persson, 2006. "A Model of Income Insurance and Social Norms," CESifo Working Paper Series 1675, CESifo Group Munich.
  3. Monojit Chatterji & Colin J. Tilley, 2002. "Sickness, absenteeism, presenteeism, and sick pay," Oxford Economic Papers, Oxford University Press, vol. 54(4), pages 669-687, October.
  4. Sheshinski, E. & Diamond, P., 1992. "Economic Aspects of Optimal Disability Benefits," Working papers 92-5, Massachusetts Institute of Technology (MIT), Department of Economics.
  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. 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.
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