INSURANCE, MORAL HAZARD, AND IMPLIED BEHAVIOR: DISABILITY COMPENSATION FOR AIR TRAFFIC CONTROLLERS
Abstract
Recent considerations of moral hazard in insurance arrangements have focused on the optimal choice of contractual provisions under uncertainty. The literature has recognized that contracts promoting carelessness, claim padding, and outright fraud are a product of a world in which information used for monitoring claims is incomplete. In such a case the costs of behavior are not entirely brought to bear on offending policyholders. Given this uncertainty, optimal contract studies have predicted the various sets of contractual provisions expected to emerge under various assumptions about the cost and availability of information. Policyholder responses to each potential provision are taken as given. This dissertation reverses the focus of the optimal contract studies. Taking a particular contract as given, it generates and tests implications for individual behavior resulting from the incentives created by the agreement. Models have been developed describing an individual's decision to avoid carelessness given the ability of the insurer to monitor his precautionary efforts. This dissertation extends the scope of the analysis to include uncertainty about the true state as well as true effort. Incentives for both carelessness and fraud exist as long as information costs preclude perfect monitoring. Prediction of resulting behavior requires identification of both incentives and the margins for adjustment available to the insured. The specific contracts chosen for study are the disability compensation program offered by the Federal Aviation Administration and Office of Workers' Compensation Programs that cover air traffic controllers. These programs cover both physical and mental disorders contracted on the job. Predictions are generated for controller behavior as a function of the government's costs of monitoring particular disabilities. An opportunity for testing the predictions is provided by exogenous changes in the administration of the programs which are asserted to increase the government's costs of monitoring controller claims. Specifically, the model predicts a rise in the incidence of reported psychological disorders as a direct response to the exogenous changes. The structure of the programs also allows the construction of a link between disability coverage and job performance. . . . (Author's abstract exceeds stipulated maximum length. Discontinued here with permission of school.) UMI
Degree
Ph.D.
Subject Area
Economic theory
Off-Campus Purdue Users:
To access this dissertation, please log in to our
proxy server.