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Luigi Pistaferri, Consumption Inequality and Family Labor Supply

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The Welfare Implications of Increasing Disability Insurance Benefit Generosity

Publication Abstract

Bound, John, Julianne Cullen, Austin Nichols, and Lucie G. Schmidt. 2004. "The Welfare Implications of Increasing Disability Insurance Benefit Generosity." Journal of Public Economics, 88(12): 2487-2514.

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. (C) 2003 Elsevier B.V. All rights reserved.

DOI:10.1016/j.jpubeco.2003.07.007 (Full Text)

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