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Designing Optimal Disability Insurance: A Case for Asset Testing

  • Mikhail Golosov
  • Aleh Tsyvinski

We analyze an implementation of an optimal disability insurance system as a competitive equilibrium with taxes. An optimum is implemented by an asset-tested disability system in which a disability transfer is paid only if an agent has assets below a specified maximum. The logic behind this result is that an agent who plans to falsely claim disability (a) finds doing so unattractive if he does not adjust his savings and (b) cannot collect disability insurance if he does adjust his savings in the desired direction (upward). For a calibrated economy, we find that welfare gains from asset testing are significant.

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File URL: http://post.economics.harvard.edu/faculty/tsyvinski/papers/disability.pdf
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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 784828000000000450.

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Date of creation: 18 Sep 2005
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Handle: RePEc:cla:levrem:784828000000000450
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  1. Narayana Kocherlakota, 2010. "Figuring out the impact of hidden savings on optimal unemployment insuranc," Levine's Working Paper Archive 506439000000000291, David K. Levine.
  2. Mikhail Golosov & Aleh Tsyvinski, 2003. "Designing optimal disability insurance," Working Papers 628, Federal Reserve Bank of Minneapolis.
  3. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-99, April.
  4. J. A. Mirrlees & P. Diamond, 1982. "Social Insurance with Variable Retirement and Private Saving," Working papers 296, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. David H. Autor & Mark G. Duggan, 2001. "The Rise in Disability Recipiency and the Decline in Unemployment," JCPR Working Papers 226, Northwestern University/University of Chicago Joint Center for Poverty Research.
  6. Narayana R. Kocherlakota, 2003. "Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation," Levine's Bibliography 666156000000000426, UCLA Department of Economics.
  7. Hansen, G.D. & Imrohoroglu, A., 1990. "The Role Of Unemployment Insurance In An Economy With Liquidity Constraints And Moral Hazard," Papers 21, California Los Angeles - Applied Econometrics.
  8. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2002. "Optimal Indirect and Capital Taxation," NajEcon Working Paper Reviews 391749000000000449, www.najecon.org.
  9. Abraham, Arpad & Pavoni, Nicola, 2004. "Efficient Allocations with Moral Hazard and Hidden Borrowing and Lending," Working Papers 04-05, Duke University, Department of Economics.
  10. Bound, John & Burkhauser, Richard V., 1999. "Economic analysis of transfer programs targeted on people with disabilities," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 51, pages 3417-3528 Elsevier.
  11. Tsyvinski, A. & Golosov, M., 2004. "Optimal Taxation with Endogenous Insurance Markets," 2004 Meeting Papers 124, Society for Economic Dynamics.
  12. Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
  13. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
  14. Casey B. Mulligan & Xavier Sala-i-Martin, 1999. "Social security in theory and practice (II): Efficiency theories, narrative theories and implications for reform," Economics Working Papers 385, Department of Economics and Business, Universitat Pompeu Fabra.
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  16. Diamond, Peter A & Mirrlees, James A, 1986. " Payroll-Tax Financed Social Insurance with Variable Retirement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 25-50.
  17. Hugo Benitez-Silva & Moshe Buchinsky & Hiu Man Chan & Sofia Cheidvasser & John Rust, 2000. "How Large is the Bias in Self-Reported Disability?," Working Papers 2000-01, Brown University, Department of Economics.
  18. Martin Feldstein, 1985. "Should Social Security Be Means Tested?," NBER Working Papers 1775, National Bureau of Economic Research, Inc.
  19. Chari, V.V. & Kehoe, Patrick J., 1999. "Optimal fiscal and monetary policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 26, pages 1671-1745 Elsevier.
  20. Stefania Albanesi & Christopher Sleet, 2004. "Dynamic optimal taxation with private information," Discussion Paper / Institute for Empirical Macroeconomics 140, Federal Reserve Bank of Minneapolis.
  21. Wang, C. & Williamson, S., 1995. "Unemployment Insurance with Moral Hazard in a Dynamic Economy," GSIA Working Papers 1995-13, Carnegie Mellon University, Tepper School of Business.
  22. Hugo Benitez-Silva & Moshe Buchinsky & John Rust, 2004. "How Large are the Classification Errors in the Social Security Disability Award Process?," NBER Working Papers 10219, National Bureau of Economic Research, Inc.
  23. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
  24. P. A. Diamond & J. A. Mirrlees, 1977. "A Model of Social Insurance With Variable Retirement," Working papers 210, Massachusetts Institute of Technology (MIT), Department of Economics.
  25. repec:oup:restud:v:63:y:1996:i:3:p:465-89 is not listed on IDEAS
  26. repec:oup:restud:v:62:y:1995:i:2:p:187-221 is not listed on IDEAS
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