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The Demand for Insurance and Rationale for a Mandate: Evidence from Workers' Compensation Insurance

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  • Marika Cabral
  • Can Cui
  • Michael Dworsky

Abstract

Workers' compensation insurance, which provides no-fault coverage for work-related injuries, is mandatory in nearly all states. We use administrative data from a unique market without a coverage mandate to estimate the demand for workers' compensation insurance, leveraging regulatory premium updates for identification. We find that a 1 percent increase in premiums leads to approximately a 0.3 percent decline in coverage. Drawing upon these estimates and data on costs, we examine potential justifications for government intervention to increase coverage. This analysis suggests that several forms of market failure—such as adverse selection, market power, and externalities—may not justify a mandate in this setting.

Suggested Citation

  • Marika Cabral & Can Cui & Michael Dworsky, 2022. "The Demand for Insurance and Rationale for a Mandate: Evidence from Workers' Compensation Insurance," American Economic Review, American Economic Association, vol. 112(5), pages 1621-1668, May.
    • Handle: RePEc:aea:aecrev:v:112:y:2022:i:5:p:1621-68
    DOI: 10.1257/aer.20190261
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    Citations

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    Cited by:

    1. Seibold, Arthur & Seitz, Sebastian & Siegloch, Sebastian, 2022. "Privatizing Disability Insurance," CEPR Discussion Papers 17568, C.E.P.R. Discussion Papers.
    2. Xiuming Dong & Johanna Catherine Maclean & David Powell, 2024. "Social Insurance Spillovers: Evidence From Paid Sick Leave Mandates and Workers' Compensation," NBER Working Papers 32751, National Bureau of Economic Research, Inc.
    3. Rahi Abouk & Keshar M. Ghimire & Johanna Catherine Maclean & David Powell, 2023. "Pain Management and Work Capacity: Evidence From Workers’ Compensation and Marijuana Legalization," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 42(3), pages 737-770, June.
    4. Pichler, Stefan & Ziebarth, Nicolas R., 2024. "Sick Leave and Medical Leave in the United States: A Categorization and Recent Trends," IZA Policy Papers 206, Institute of Labor Economics (IZA).
    5. Broten, Nicholas & Dworsky, Michael & Powell, David, 2022. "Do temporary workers experience additional employment and earnings risk after workplace injuries?," Journal of Public Economics, Elsevier, vol. 209(C).
    6. Timpe, Brenden, 2024. "The labor market impacts of America’s first paid maternity leave policy," Journal of Public Economics, Elsevier, vol. 231(C).
    7. Casey Rothschild, 2024. "Welfare analysis in insurance markets," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 49(1), pages 36-58, March.
    8. Liran Einav & Amy Finkelstein, 2023. "Empirical analyses of selection and welfare in insurance markets: a self-indulgent survey," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 48(2), pages 167-191, September.

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G52 - Financial Economics - - Household Finance - - - Insurance
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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