The Determination of Workers’ Compensation Benefit Levels

  • Patricia M. Danzon
Part of the Huebner International Series on Risk, Insurance and Economic Security book series (HSRI, volume 16)


The purpose of this chapter is to analyze the incidence of the cost of workers’ compensation (WC) benefits and to examine whose preferences are reflected in the benefit levels chosen. The standard assumption of economists is that the costs of WC benefits are borne by workers in the form of a compensating wage differential. Several empirical studies appear to confirm this hypothesis. Dorsey and Walzer (1983) conclude that for nonunion workers there is a fully offsetting wage differential for compensation benefits, although for union members they find a significantly positive correlation between wages and benefit levels. Viscusi and Moore (1987) conclude that “the observed rate at which workers are willing to trade off base wage rates for higher levels of compensation greatly exceeds the actuarial rate of trade-off, even taking into account administrative costs. These results suggest that current benefit levels are suboptimal, provided that one abstracts from moral hazard considerations.”1


Small Firm Moral Hazard Absolute Risk Aversion Benefit Level Compensation Insurance 
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© Kluwer Academic Publishers 1993

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  • Patricia M. Danzon

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