Journal of Public Economics
In order to evaluate whether workers are over- or under-insured through the Disability Insurance (DI) 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, we find that the typical worker would value increased benefits somewhat above the average costs of providing them. However, whether the benefit increases tend to lower or raise utility when we average across all individuals in our sample is sensitive to assumptions that affect the relative marginal utility of income to disabled individuals.
Disability insurance, Income security, Labor supply disincentives
Bound, John; Cullen, Julie Berry; Nichols, Austin; and Schmidt, Lucie, "The Welfare Implications of Increasing Disability Insurance Benefit Generosity" (2004). Economics: Faculty Publications, Smith College, Northampton, MA.