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Designing Optimal Disability Insurance: A Case for Asset Testing Author info | Abstract | Publisher info | Download info | Related research | Statistics Mikhail Golosov
Aleh Tsyvinski
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The paper analyzes an implementation of an optimal disability insurance system as a competitive equilibrium with taxes. The problem is modeled as a dynamic mechanism design problem in which disability is unobservable. We show that an asset-tested disability system in which a disability transfer is paid only if an agent has assets below a specified maximum implements the optimum. The logic behind the result is as follows: we show that an agent who falsely claims disability has higher savings than a truly disabled agent, and an asset test prevents false claimants from receiving disability. We also evaluate welfare benefits of asset testing. For a calibrated economy, we numerically compare the optimal system to the best system without asset testing. We find that gains of asset testing are significant and equal to about 0.65% of consumption.
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Date of creation: Sep 2004Date of revision:
Handle: RePEc:nbr:nberwo:10792Note: PEContact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Email: Web page: http://www.nber.org More information through EDIRC
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Find related papers by JEL classification: E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook H2 - Public Economics - - Taxation, Subsidies, and Revenue H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
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