Question

If higher social insurance program benefits should be targeted towards those who get the most benefits from consumption smoothing, and for those whom the problem of moral hazard is relatively small,

a. Should the unemployment program target the temporarily unemployed or the permanently laid off? Why?

b. Should the disability insurance and workers’ compensation programs target those with easier or harder to verify injuries? Why?

Answer 1

a) Unemployed program should be targeted on the temporarily unemployed workers because they should feel secure during the phase of unemployment. Unemployment benefit for permanently laid off will not benefit the government and wont boost the GDP. Whereas the temperorily unemployed will get better with the aid and search for the other employment within the stipulated time and contribute to the economy of the country. Providing unemployment Benefits for the permanent laidoff will make them relax and they will not search for the other job.

b) Disability insurance should be targeted towards the easier to verify injuries. Because orphan lost and damage can be covered through compensation and that will help them to survive. But providing benefits for the harder to verify will result in lot of fraud cases.