mandated_benefits - Mandated Benefits mandated benefit...

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Mandated Benefits mandated benefit - government mandates that employers provide their workers with some benefit Government strategies for providing individuals with a benefit : • public provision- public education, old-age benefits (Social Security) • mandated benefit- federal government mandates that employers keep the workplace safe, provide workers’ compensation insurance to workers… • no action Why issue a mandated benefit? (as opposed to no action) #1) paternalism - “individuals value certain services too little” “[Individuals] may irrationally underestimate the probability of catastrophic health expenses… In the pension context, this argument may be especially persuasive since individuals are likely to be especially inept at making intertemporal decisions.” assumes “individual irrationality” to an extent #2) externality - 3 rd party not directly involved in the economic transaction is affected by the economic transaction •physical externality “The most obvious case is health insurance. Society cares about preventing the spread of contagious diseases more than any individual does or would take account of. Further, people prefer for their friends and relatives to remain healthy, yet they cannot individually subsidize health insurance for all other consumers.” •financial externality “When the uninsured get served by medical providers and don’t pay their bills, those costs are passed on to other users of the medical system through high medical prices, a practice called cost-shifting . The latest estimates suggest that the amount of uncompensated care delivered in the United States is $35 billion per year.” (401) #3) adverse selection considerations adverse selection - those most likely to benefit from insurance are those most likely to seek insurance “If employees have more information about whether they will need parental leave or face high
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This note was uploaded on 09/13/2009 for the course PAM 2040 taught by Professor Lewis during the Spring '07 term at Cornell.

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mandated_benefits - Mandated Benefits mandated benefit...

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