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Séminaire CREST du 10 Mars 2011

Jean-Baptiste MICHAU (Ecole Polytechnique)

"Optimal Social Security with Imperfect Tagging"

with Oliver DENK (LSE and STICERD)

de 14 h à 15 h 30 en Salle S016 à l'INSEE-CREST, 15 Boulevard Gabriel Péri, 92245 MALAKOFF (Métro : Malakoff/Plateau de Vanves (Immeuble "Malakoff 2)).

Abstract :
Workers are exposed to the risk of permanent disability. We rely on a dynamic mechanism design approach to determine how imperfect information on health should optimally be used to improve the trade-off between inducing the able to work and providing insurance to the truly disabled. After deriving the first-order conditions to this problem, we calibrate the model and run a numerical simulation. The government should offer back-loaded incentives and make a strategic use of the gap in timing between the age at which disability occurs and the age of eligibility to disability benefits. Also, the able who are (mistakenly) tagged as disabled should be encouraged to work until some early retirement age. This makes a decrease in the strictness of the disability test desirable which would reduce the number of disabled who are not awarded the tag and, hence, improve insurance. Finally, we show how the first-best allocation of resources could asymptotically be implemented by making a strategic use of the disability test.