Year: 2004
Type: report
Abstract: The paper analyzes an implementation of an optimal disability insurance system as a competitive equilibrium with taxes.The problem is modeled as a dynamic mechanism design problem in which disability is unobservable.We show that an asset-tested disability system in which a disability transfer is paid only if an agent has assets below a specified maximum implements the optimum.The logic behind the result is as follows: we show that an agent who falsely claims disability has higher savings than a truly disabled agent, and an asset test prevents false claimants from receiving disability.We also evaluate welfare benefits of asset testing.For a calibrated economy, we numerically compare the optimal system to the best system without asset testing.We find that gains of asset testing are significant and equal to about 0.65% of consumption.
DOI: 10.3386/w10792
Authors: Mikhail Golosov, Aleh Tsyvinski
Language: English
Subfield: Demography
Field: Social Sciences
Domain: Social Sciences
SDG: Reduced inequalities
Open Access status: green
OpenAlex ID: W2149309347