Workers’ Compensation: Recent Developments in Moral Hazard and Benefit Payments

Posted: 30 Jun 2010

See all articles by Xuguang (Steve) Guo

Xuguang (Steve) Guo

University of Wisconsin - Whitewater - College of Business and Economics

John F. Burton, Jr.

Rutgers University - School of Management and Labor Relations; Rutgers University: School of Management and Labor Relations

Date Written: January 1, 2010

Abstract

Studies using pre-1990 data generally found benefit and frequency elasticities for workers’ compensation cash benefits that exceeded, respectively, 1.0 and 0: an increase in expected benefits apparently induced (a) an even greater increase in actual benefit payments and (b) an increase in claim frequency. Researchers previously hypothesized that incentive effects for workers dominated those for employers. The authors of this study reevaluate benefit and frequency elasticities for 1975-89, using data with some advantages over those used by previous studies, and also investigate whether the elasticities changed during the years 1990-1999, when insurance policies with large deductibles increased employers’ incentives to limit benefits and many states restricted benefit eligibility. For both periods, they find benefit elasticities significantly under 1.0 and frequency elasticities of about 0. They also find that much of the substantial decline in actual benefits in the 1990s was due to changes in state compensability rules and administrative stringency.

Keywords: Workers' Compensation, Benefits

JEL Classification: J32

Suggested Citation

Guo, Xuguang (Steve) and Burton, John F. and Burton, John F., Workers’ Compensation: Recent Developments in Moral Hazard and Benefit Payments (January 1, 2010). Industrial and Labor Relations Review, Vol. 63, No. 2, 2010, Available at SSRN: https://ssrn.com/abstract=1632956

Xuguang (Steve) Guo (Contact Author)

University of Wisconsin - Whitewater - College of Business and Economics ( email )

Whitewater, WI 53190
United States

John F. Burton

Rutgers University: School of Management and Labor Relations

Rutgers University - School of Management and Labor Relations

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