TY - JOUR AU - Bound,John AU - Cullen,Julie Berry AU - Nichols,Austin AU - Schmidt,Lucie TI - The Welfare Implications of Increasing Disability Insurance Benefit Generosity JF - National Bureau of Economic Research Working Paper Series VL - No. 9155 PY - 2002 Y2 - September 2002 UR - http://www.nber.org/papers/w9155 L1 - http://www.nber.org/papers/w9155.pdf N1 - Author contact info: John Bound Department of Economics University of Michigan Ann Arbor, MI 48109-1220 Tel: 734/998-7149 Fax: 734/998-7415 E-Mail: jbound@umich.edu Julie Berry Cullen Department of Economics - 0508 University of California, San Diego 9500 Gilman Drive La Jolla, CA 92093-0508 Tel: 858/822-2056 Fax: 858/534-7040 E-Mail: jbcullen@ucsd.edu Austin Nichols Urban Institute 2100 M Street, NW Washington, DC 20037 E-Mail: anichols@urban.org Lucie Schmidt Dept. of Economics Schapiro Hall Williams College Williamstown, MA 02167 E-Mail: lschmidt@williams.edu AB - 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. ER -