The Tradeoff between Knowledge of Mandated Benefits and Moral Hazard

46 Pages Posted: 8 Jul 2021

Date Written: June 23, 2021

Abstract

When workers are not aware of a mandated benefit, they cannot take it into account in their employment decision, leading to deadweight loss. On the other hand, lack of awareness of a benefit reduces moral hazard, decreasing deadweight loss. I incorporate these trade-offs into a model of mandated benefits and apply the model to Temporary Disability Insurance, an employment benefit mandated in five states. First, I provide evidence on low awareness of this benefit using data collected through an original survey. Then I use the updated mandated benefits model to show that over a broad range of reasonable assumptions, the additional employee valuation of the benefit outweighs the additional program cost from moral hazard, and thus a public information campaign would increase employment.

Keywords: Mandated benefits, Workplace benefits, Moral hazard, Imperfect information

JEL Classification: J32, H75

Suggested Citation

Brown, Jessica, The Tradeoff between Knowledge of Mandated Benefits and Moral Hazard (June 23, 2021). Available at SSRN: https://ssrn.com/abstract=3872876 or http://dx.doi.org/10.2139/ssrn.3872876

Jessica Brown (Contact Author)

University of South Carolina ( email )

Darla Moore School of Business
1014 Greene Street
Columbia, SC 29208
United States

HOME PAGE: http://www.jessicahbrown.com

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