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A Continuous Model of Income Insurance

Author

Listed:
  • Lindbeck, Assar

    (Research Institute of Industrial Economics (IFN))

  • Persson, Mats

    (IIES)

Abstract
We develop a simple yet realistic model of income insurance, where the individual’s ability and willingness to work is treated as a continuous variable. In this framework, income insurance not only provides income smoothing, it also relieves the individual from particularly burdensome work. As a result, the individual adjusts his labor supply in a continuous fashion to the implicit tax wedge of the insurance system. Moral hazard, in the sense that an individual receives insurance benefits without actually being fully qualified, also becomes a matter of degree. Moreover, our continuous framework makes it easy to analyze both the role of administrative rejection of claims, and the role of social norms, for the utilization of insurance.

Suggested Citation

  • Lindbeck, Assar & Persson, Mats, 2008. "A Continuous Model of Income Insurance," Working Paper Series 763, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0763
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    References listed on IDEAS

    as
    1. Assar Lindbeck & Sten Nyberg & Jörgen W. Weibull, 1999. "Social Norms and Economic Incentives in the Welfare State," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 1-35.
    2. Amy Finkelstein & Erzo F. P. Luttmer & Matthew J. Notowidigdo, 2009. "Approaches to Estimating the Health State Dependence of the Utility Function," American Economic Review, American Economic Association, vol. 99(2), pages 116-121, May.
    3. Edward L. Glaeser & Bruce I. Sacerdote & Jose A. Scheinkman, 2003. "The Social Multiplier," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 345-353, 04/05.
    4. Stefania Albanesi & Christopher Sleet, 2006. "Dynamic Optimal Taxation with Private Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(1), pages 1-30.
    5. Philip J. Cook & Daniel A. Graham, 1977. "The Demand for Insurance and Protection: The Case of Irreplaceable Commodities," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 91(1), pages 143-156.
    6. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-1035, December.
    7. Mikhail Golosov & Aleh Tsyvinski, 2003. "Designing optimal disability insurance," Working Papers 628, Federal Reserve Bank of Minneapolis.
    8. Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
    9. 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.
    10. 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.
    11. Whinston, Michael D., 1983. "Moral hazard, adverse selection, and the optimal provision of social insurance," Journal of Public Economics, Elsevier, vol. 22(1), pages 49-71, October.
    12. Rees, Ray & Wambach, Achim, 2008. "The Microeconomics of Insurance," Foundations and Trends(R) in Microeconomics, now publishers, vol. 4(1–2), pages 1-163, February.
    13. 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.
    14. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 295-336, December.
    15. Peter A. Diamond, 2005. "Taxation, Incomplete Markets, and Social Security," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262541823, April.
    16. Diamond, Peter & Sheshinski, Eytan, 1995. "Economic aspects of optimal disability benefits," Journal of Public Economics, Elsevier, vol. 57(1), pages 1-23, May.
    17. Per Engström & Bertil Holmlund, 2007. "Worker Absenteeism in Search Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 439-467, September.
    18. Lindbeck, Assar & Persson, Mats, 2006. "A Model of Income Insurance and Social Norms," Working Paper Series 659, Research Institute of Industrial Economics.
    19. Zweifel, Peter, 2007. "The Theory of Social Health Insurance," Foundations and Trends(R) in Microeconomics, now publishers, vol. 3(3), pages 183-273, May.
    20. Strohmenger, R. & Wambach, A., 2000. "Adverse selection and categorical discrimination in the health insurance markets: the effects of genetic tests," Journal of Health Economics, Elsevier, vol. 19(2), pages 197-218, March.
    21. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    22. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
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    Cited by:

    1. Andersson, Fredrik W. & Bokenblom, Mattias & Brantingson, Staffan & Brännström, Susanne Gullberg & Wall, Johan, 2011. "Sick listing—Partly a family phenomenon?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(5), pages 496-502.
    2. Calmfors, Lars, 2010. "Fiscal Policy Coordination in Europe," Seminar Papers 765, Stockholm University, Institute for International Economic Studies.
    3. Assar Lindbeck & Mårten Palme & Mats Persson, 2016. "Sickness Absence and Local Benefit Cultures," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(1), pages 49-78, January.

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    More about this item

    Keywords

    Moral Hazard; Disability Insurance; Work Absence; Administrative Rejection; Asymmetric Information; Social Norms;
    All these keywords.

    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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