NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Welfare Implications of Increasing Disability Insurance Benefit Generosity

John Bound, Julie Berry Cullen, Austin Nichols, Lucie Schmidt

NBER Working Paper No. 9155
Issued in September 2002
NBER Program(s):   AG   LS   PE

The focus on efficiency costs in the empirical literature on Disability Insurance (DI) provides a misleading view of the adequacy of payment levels. In order to evaluate whether workers are over- or under-insured through the social insurance program, we develop a framework that allows us to simulate the benefits as well as the costs associated with marginal changes in payment generosity from a representative cross-sectional sample of the population. Under the assumption that individuals are reasonably risk averse, our simulations suggest the typical worker would value increased benefits somewhat above the average costs of providing them. However, we find that benefit increases tend to lower average utility when we average across all individuals in our sample, particularly at high levels of risk aversion. This counterintuitive finding arises because some lower income DI-insured workers face replacement rates that are near or above one. For such individuals, a benefit increase would represent transfers from an even lower income state of the world in which they are not on DI to one in which they are, a transfer that would not be beneficial even if there were no behavioral distortions associated with the provision of DI benefits.

download in pdf format
   (563 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (563 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w9155

Published: Bound, John, Julie Berry Cullen, Austin Nichols and Lucie Schmidt. "The Welfare Implications Of Increasing Disability Insurance Benefit Generosity," Journal of Public Economics, 2004, v88(12,Dec), 2487-2514.

Users who downloaded this paper also downloaded these:
Chandra and Samwick w11605 Disability Risk and the Value of Disability Insurance
Autor and Duggan w12436 The Growth in the Social Security Disability Rolls: A Fiscal Crisis Unfolding
Leonard w0392 The Social Security Disability Program and Labor Force Participation
Chetty and Finkelstein w18433 Social Insurance: Connecting Theory to Data
Boersch-Supan and Juerges w17079 Disability, Pension Reform and Early Retirement in Germany
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us