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A Continuous Theory of Income Insurance


  • Assar Lindbeck
  • Mats Persson


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

  • Assar Lindbeck & Mats Persson, 2010. "A Continuous Theory of Income Insurance," CESifo Working Paper Series 3097, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3097

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    References listed on IDEAS

    1. Lindbeck, Assar & Persson, Mats, 2006. "A Model of Income Insurance and Social Norms," Working Paper Series 659, Research Institute of Industrial Economics.
    2. 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.
    3. 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.
    4. 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.
    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 561-566.
    6. Diamond, Peter & Sheshinski, Eytan, 1995. "Economic aspects of optimal disability benefits," Journal of Public Economics, Elsevier, vol. 57(1), pages 1-23, May.
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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.

    More about this item


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

    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
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure


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