Seminar Papers, Institute for International Economic Studies, Stockholm University
A Model of Income Insurance and Social Norms
() and Mats Persson
Abstract: A large literature on ex ante moral hazard in income
insurance emphasizes that the individual can affect the probability of an
income loss by choice of lifestyle and hence, the degree of risk-taking.
The much smaller literature on moral hazard ex post mainly analyzes how a
“moral hazard constraint” can make the individual abstain from fraud
(“mimicking”). The present paper instead presents a model of moral
hazard ex post without a moral hazard constraint; the individual's ability
and willingness to work is represented by a continuous stochastic variable
in the utility function, and the extent of moral hazard depends on the
generosity of the insurance system. Our model is also well suited for
analyzing social norms concerning work and benefit dependency.
Keywords: Moral hazard; sick pay insurance; labor supply; asymmetric information; (follow links to similar papers)
JEL-Codes: G22; H53; I38; J21; (follow links to similar papers)
29 pages, February 14, 2006
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