Low and Pistaferri Flashcards
(20 cards)
Why did they focus on low education individuals?
Their goal was to focus on studying the population group that is most responsive.
Since by age 60, the low educated are 2.5x more likely to be DI claimants than the high educated.
How do you describe the relation between consumption and work (linking to the within period utility function)?
They are Frisch complements, meaning that the marginal utility of consumption is higher when suffering from a work limitation.
What data do they use?
They use all the waves of the Panel Study of income dynamics between 1986 and 2009
What issues do they have with the survey use and information on DI application?
It does not provide it - but uses a indirect inference procedure to circumvent this problem
What observation did they make regarding the fraction of claimants who are healthy and how it links to age?
They found that it is very high early on in the life cycle, while “coverage” becomes a lot more effective at the end of the working life cycle.
DI programme therefore less effective at screening younger workers.
How is the model implemented?
In a 5 step process
(1) specify and parameterise a utility function
(2) specify and parameterise a wage process
- but issues with fixed effects and potential corerlation, plus selection effects (corrected on reduced form)
(3) specifiy the tax/transfer/insurance programmes
(4) solve model - use state variables and then solve using indirect inference, calibrating to the actual data
(5) then estimate parameters outside of he model using established findings from the literature, and estimate any remaining so model outputs match data analogues
How does the probability of working decline on the onset of a work limitation (severe and moderate)?
Probability of working declines by 27 percentage points at the onset of a moderate work limitation, and by 74 percentage points at the onset of a severe work limitation.
How does a work limitation impact utility in terms of consumption?
A moderate (severe) work limitation corresponds to a 36% (59%) loss of utility in terms of consumption.
What is the elasticity of DI applications with respect to benefit generosity?
Estimate of the elasticity (using all individuals) is 0.62.
However, this figure masks considerable heterogeneity by health and productivity type.
The moderately disabled are very elastic in their response to generosity, whereas the severely disabled have very little response.
How does health status change behaviour (note: two ways)?
Health status affects behaviour in two ways: it shifts preferences (non-separability, where health enters directly into the utility function) and it changes the fixed cost of work
What happened to the fraction of application when the generousity of DI payments increased?
Both false applications and coverage of the severely disabled increase as generosity increases.
However, the fraction of false applicants is much more responsive to changes.
What happened to overall welfare when the generousity of DI payments increased?
Despite the rise in false applications with generosity, welfare increases with increased generosity.
What happens to admissions in relation to DI applications when we see an increase in strictness for applications?
Reduces the probability of acceptance for the severely disabled over 45 (under 45) from 90% to 30% (70% to 13%, respectively).
What happens to overall welfare when we have in increase in strictness of applications?
The gain in improved insurance from making the program less strict dominates the loss associated with increased numbers of false applicants and a greater award error.
The subgroup of young, severely disabled individuals are particularly ill-equipped to insure against disability risk because these individuals face high rejection rates when applying for DI and yet have not had time to accumulate enough assets to self-insure.
What happens to welfare when we see an increase in reassessment rates?
The increase in reassessment rates has a small negative effect on welfare.
What happens to DI applications upon an increase in the generousity of the food stamp programme?
For false applicants, food stamps are substitutes for disability insurance and generally application to DI falls as food stamps’ generosity increases.
Those with only a moderate work limitation use the increasingly generous means-tested program. But complement for those with severe limitations.
What happens to DI applications upon an increase in the generousity of the food stamp programme?
Effects imply substantial welfare increases as the generosity of food stamps increases. This increase is despite the fall in output and savings that greater generosity induces, also because they are less distortionary than DI.
What limitation in the model do they face regarding health investments?
Do not allow for health investments which may reduce the impact of a health shock.
This assumption makes health risk independent of the decision process and so can be estimated outside of the model. In practice most heterogeneity in health investment occurs between education groups
Do they model individual behaviour or family. behaviour?
Individual due to nature of programme.
However, this might then neglect where the insurance is coming from, for example, spousal labour supply.
What omission could be a problem as it relates to health investments?
Does not allow for health investments which may reduce the impact of a health shock.
This assumption makes health risk independent of the decision process and so can be estimated outside of the model. In practice most heterogeneity in health investment occurs between education groups.
