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Optimal Social Security with Imperfect Tagging

Author

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  • Oliver Denk
  • Jean‐Baptiste Michau

Abstract

Workers are exposed to the risk of permanent disability. We rely on a dynamic mechanism design approach to determine how imperfect information on health should optimally be used to improve the trade‐off between inducing the able to work and providing insurance against disability. The government should offer back‐loaded incentives and exploit the information revealed by the gap between the age at which disability occurs and the age of eligibility to disability benefits. Furthermore, the able who are (mistakenly) tagged as disabled should be encouraged to work until some early retirement age.

Suggested Citation

  • Oliver Denk & Jean‐Baptiste Michau, 2018. "Optimal Social Security with Imperfect Tagging," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(3), pages 717-762, July.
    • Handle: RePEc:bla:scandj:v:120:y:2018:i:3:p:717-762
    DOI: 10.1111/sjoe.12250
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    Cited by:

    1. Hamish Low & Luigi Pistaferri, 2010. "Disability Risk, Disability Insurance and Life Cycle Behavior," NBER Working Papers 15962, National Bureau of Economic Research, Inc.
    2. Tom Zawisza, 2023. "Retirement Pensions and Disability Insurance for the 21st Century," Working Papers wp455, University of Michigan, Michigan Retirement Research Center.
    3. Michau, Jean-Baptiste, 2014. "Optimal redistribution: A life-cycle perspective," Journal of Public Economics, Elsevier, vol. 111(C), pages 1-16.
    4. Hamish Low & Luigi Pistaferri, 2015. "Disability Insurance and the Dynamics of the Incentive Insurance Trade-Off," American Economic Review, American Economic Association, vol. 105(10), pages 2986-3029, October.
    5. Jean-Baptiste Michau, 2011. "Optimal Redistribution with Intensive and Extensive Labor Supply Margins: A Life-Cycle Perspective," Working Papers hal-00639121, HAL.

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