2013

A Continuous Model of Income Insurance

Reprint No. 2013:45

Author(s): Assar Lindbeck and Mats PerssonYear: 2013 Title: International Tax and Public Finance Volume (No.): 20 (6) Pages: 938–960
Online article (restrictions may apply)
Preliminary version


In this paper we treat an individual’s health as a continuous variable, in contrast to the traditional literature on income insurance, where it is assumed that the individual is either able or unable to work. A continuous treatment of an individual’s health sheds new light on the role of income insurance and makes it possible to capture a number of real-world phenomena that are not easily captured in the traditional, dichotomous models. In particular, we show that moral hazard is not necessarily outright fraud, but a gradual adjustment of the willingness to work, depending on preferences and the conditions stated in the insurance contract. Further, the model can easily encompass phenomena such as administrative rejection of claims, and it clarifies the conditions for the desirability of insurance in the first place.


Reference:
Lindbeck, Assar and Mats Persson (2013), "A Continuous Model of Income Insurance". International Tax and Public Finance 20(6), 938–960.

Interdisciplinary European Studies

The European Union and the Return of the Nation State

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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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