Social insurance with in-kind provision of private goods

This paper addresses the desirability of providing in-kind transfers as a screening device to facilitate redistribution of income from able to disabled persons within a social insurance system. An optimal policy - consisting of cash transfers, income-contingent in-kind transfers of one good particularly demanded by disabled workers, and linear taxation of other commodities - is characterized. It is then asked whether and, if so, when this policy can be replaced by an "earning-tested scheme" that provides the in-kind good only to those indivi duals who have no earnings from labor or by a non-linear pricing policy.