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Identifying Selection in Social Insurance: Risk-based Selection and Selection on Moral Hazard

Author

Listed:
  • Mette Ejrnaes

    (Department of Economics, University of Copenhagen)

  • Stefan Hochguertel

    (Department of Economics, Vrije Universiteit Amsterdam)

Abstract

We investigate selection into a voluntary unemployment insurance (UI) scheme by exploiting variation in enrollment driven by an early retirement program embedded within the UI system. Using Danish administrative data and an event study design, we identify negative selection among UI enrollees with respect to subsequent unemployment risk. Our analysis distinguishes between risk-based selection and selection on moral hazard. We find that risk-based selection accounts for approximately two percentage points, while the selection on moral hazard is about one and a half percentage points. Together, these effects explain two-thirds of the observed difference in unemployment risk between insured and uninsured individuals. Quantitatively, selection on moral hazard is nearly as important as risk-based selection.

Suggested Citation

  • Mette Ejrnaes & Stefan Hochguertel, 2026. "Identifying Selection in Social Insurance: Risk-based Selection and Selection on Moral Hazard," CEBI working paper series 26-10, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    • Handle: RePEc:kud:kucebi:2610
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    File URL: https://www.econ.ku.dk/cebi/publikationer/working-papers/CEBI_WP_10-26.pdf
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    Keywords

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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