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A Continuous Theory of Income Insurance

Author

Listed:
  • 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.

Suggested Citation

  • Lindbeck, Assar & Persson, Mats, 2010. "A Continuous Theory of Income Insurance," Seminar Papers 763, Stockholm University, Institute for International Economic Studies.
  • Handle: RePEc:hhs:iiessp:0763
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    References listed on IDEAS

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    1. Assar Lindbeck & Sten Nyberg & Jörgen W. Weibull, 1999. "Social Norms and Economic Incentives in the Welfare State," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 1-35.
    2. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 629-649.
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    5. Mikhail Golosov & Aleh Tsyvinski, 2006. "Designing Optimal Disability Insurance: A Case for Asset Testing," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 257-279, April.
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    7. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 295-336, December.
    8. Lindbeck, Assar & Persson, Mats, 2006. "A Model of Income Insurance and Social Norms," Working Paper Series 659, Research Institute of Industrial Economics.
    9. Barmby, Tim & Sessions, John G & Treble, John G, 1994. " Absenteeism, Efficiency Wages and Shirking," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(4), pages 561-566.
    10. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-1035, December.
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    12. Diamond, Peter & Sheshinski, Eytan, 1995. "Economic aspects of optimal disability benefits," Journal of Public Economics, Elsevier, vol. 57(1), pages 1-23, May.
    13. Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
    14. Zweifel, Peter, 2007. "The Theory of Social Health Insurance," Foundations and Trends(R) in Microeconomics, now publishers, vol. 3(3), pages 183-273, May.
    15. 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.
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    Cited by:

    1. Per Johansson & Erica Lindahl, 2013. "Can sickness absence be affected by information meetings? Evidence from a social experiment," Empirical Economics, Springer, vol. 44(3), pages 1673-1695, June.

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    More about this item

    Keywords

    moral hazard; disability insurance; sick pay; work absence; social norms;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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