A Continuous Theory of Income Insurance

49 Pages Posted: 27 Jun 2010

See all articles by Assar Lindbeck

Assar Lindbeck

; CESifo (Center for Economic Studies and Ifo Institute); Research Institute of Industrial Economics (IFN)

Mats Persson

Stockholm University; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 24, 2010

Abstract

In this paper we treat an individual’s health as a continuous variable, in contrast to the traditional literature on income insurance, where it is regularly treated as a binary variable. This is not a minor technical matter; in fact, a continuous treatment of an individual’s health sheds new light on the role and functioning of income insurance and makes it possible to capture a number of real-world phenomena that are not easily captured in binary models. In particular, moral hazard is not regarded as outright fraud, but as a gradual adjustment of the willingness to go to work when income insurance is available. Further, the model can easily encompass phenomena such as administrative rejection of claims and the role of social norms. It also gives a rich view of the desirability of insurance in the first place.

Keywords: moral hazard, disability insurance, sick pay, work absence, social norms

JEL Classification: G22, H53, I38, J21

Suggested Citation

Lindbeck, Assar and Persson, Mats, A Continuous Theory of Income Insurance (June 24, 2010). CESifo Working Paper Series No. 3097. Available at SSRN: https://ssrn.com/abstract=1629686

Assar Lindbeck (Contact Author)

( email )

Stockholm, SE-10691
Sweden
+46 8 163 078 (Phone)
+46 8 162 946 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se/assarl

Mats Persson

Stockholm University ( email )

Stockholm, SE-10691
Sweden

HOME PAGE: http://www.cesifo.de

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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