Evidence from Workers' Compensation Insurance
ResearchPosted on rand.org Sep 23, 2022Published in: American Economic Review, Volume 112, No. 5, pages 1621–1668 (May 2022). doi: 10.1257/aer.20190261
Workers' compensation insurance, which provides no-fault coverage for work-related injuries, is mandatory in nearly all states. We use administrative data from a unique market without a coverage mandate to estimate the demand for workers' compensation insurance, leveraging regulatory premium updates for identification. We find that a 1 percent increase in premiums leads to approximately a 0.3 percent decline in coverage. Drawing upon these estimates and data on costs, we examine potential justifications for government intervention to increase coverage. This analysis suggests that several forms of market failure—such as adverse selection, market power, and externalities—may not justify a mandate in this setting.
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