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Forward-looking moral hazard in social insurance

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  • Eliason, Marcus
  • Johansson, Per
  • Nilsson, Martin

Abstract

This study tests for forward-looking moral hazard in the sickness insurance system by exploiting a 1991 reform in Sweden. The replacement rate was reduced for short absences but not for long absences, which introduced a potential future cost of returning to work. Using this exogenous variation in the replacement rate and controlling for dynamic selection, we find that the potential future cost of returning to work decreased the outflow from long-term sickness absence. This finding suggests that long-term sickness absentees respond to economic incentives and are forward-looking, which highlights the importance of taking forward-looking behavior into account when designing and evaluating social insurance programs.

Suggested Citation

  • Eliason, Marcus & Johansson, Per & Nilsson, Martin, 2019. "Forward-looking moral hazard in social insurance," Labour Economics, Elsevier, vol. 60(C), pages 84-98.
    • Handle: RePEc:eee:labeco:v:60:y:2019:i:c:p:84-98
    DOI: 10.1016/j.labeco.2019.06.003
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    More about this item

    Keywords

    Dynamic incentives; Forward-looking behavior; Moral hazard; Sickness absence; Sickness insurance;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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