Abstract
A link between social insurance and education policy is explored. Due to moral hazard full insurance against disability is not feasible. When high- and low-risk individuals can be identified second-best social insurance system entails cross-subsidies from the low-risk group to the high-risk group. Implementation of this second-best insurance however distorts the human capital investment decisions when education qualifies for a low risk job. Therefore, the second-best social insurance together with an education subsidy is a welfare improving policy. An education policy also has the role of establishing dynamic consistency of the government's policy.
| Original language | English |
|---|---|
| Pages (from-to) | 425-441 |
| Number of pages | 17 |
| Journal | Journal of Population Economics |
| Volume | 13 |
| Issue number | 3 |
| Publication status | Published - 2000 |
Keywords
- Disability pensions
- Education policy
- Time consistency
