The Demand for Insurance and Rationale for a Mandate

Evidence from Workers' Compensation Insurance

Published in: American Economic Review, Volume 112, No. 5, pages 1621–1668 (May 2022). doi: 10.1257/aer.20190261

Posted on RAND.org on September 23, 2022

by Marika I. Cabral, Can Cui, Michael Dworsky

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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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