Sebastian Siegloch, University of Cologne
Privatizing Disability Insurance
Abstract
Public disability insurance (DI) programs in many countries face pressure to reduce their generosity in order to remain sustainable. In this paper, we investigate the welfare effects of giving a larger role to private insurance markets in the face of public DI cuts. Exploiting a unique reform that abolished one part of the German public DI system for younger cohorts, we find that despite significant crowding-in effects, overall private DI take-up remains modest. Moreover, private DI tends to be concentrated among high-income, high-education, and low-risk individuals. We do not find any evidence of adverse selection on unpriced risk. Finally, we estimate individual insurance valuations via a revealed preferences approach, a key input for welfare calculations. Taken at face value, the low observed willingness to pay of many individuals implies that providing coverage partly via a private DI market with choice improves welfare. However, we show that distributional concerns as well as individual risk misperceptions can provide grounds for justifying a full public mandate.
Sebastian Siegloch is a professor of economics at the University of Cologne and member of the DFG Excellence Cluster ECONtribute of the Universities of Cologne and Bonn. Until May 2022, he was a professor at the University of Mannheim and Head of the Research Department "Inequality and Public Policy" at the ZEW-Leibniz Centre for European Economic Research.
His research is on the intersection of Public, Labor and Urban Economics. He is currently studying the effects of local business and property taxes on various labor market outcomes, such as wages, employment and rents. In 2021, he was awarded an ERC starting grant for the project "Housing, Inequality and Public Policies (HIPPO)". Stay tuned for first results.
His work has been published in the American Economic Review, the Journal of the European Economic Association and the Journal of Public Economics among others.
You can read more about Sebastian Siegloch here
CEBI contact: Jacob Egholt Søgaard