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Behavioral Responses to Changes in Federal Disability Policy: The Role of Measured Disability on Inferences

Brent Kreider, Iowa State University

in Research in Human Capital and Development, Vol. XIII: Essays in the Economics of Disability
    David Salkever and Alan Sorkin (eds.), JAI Press, Feb/Mar 2000, 81-107.

Using both direct and indirect information about work limitation, this paper constructs and estimates a simultaneous model
of "true" work disability, applications for federal disability benefits, and awards. Potential overreporting of work limitation
by applicants is treated as a censored-sample problem. Empirical findings suggest that the estimated sensitivity of applications
to changes in benefit levels is downward biased when using a typical "uncorrected" measure of work limitation in the estimation.
The estimated sensitivity of applications to changes in award standards is also found to be downward biased when using this
measure, and in this case its use introduces more bias into the policy inferences than omitting a disability measure from the
analysis altogether. Younger, unmarried, less educated, male, and black applicants are found most likely to exaggerate work
limitation.