City Research Online

Abstract

This paper introduces a multi‐stage Overlapping Generations (OLG) model of workers and retirees, segmented by disability status and eligibility for Disability Pension (DP) benefits. Extending Gertler (1999) with progressive disability stages of distinct productivity and transition probabilities, and calibrated to US data, the model generates DP benefits of 6.78% of GDP in the base case. Sensitivity analyses on replacement ratios, survival, labor‐force growth, and differential mortality confirm robustness. We evaluate four reforms: Disability Assistance, employment incentives, benefit reduction, and tighter screening. Benefit reduction and screening are near‐substitutes at the macroeconomic level but differ sharply in distributional consequences, while a decomposition of aggregate and per‐capita effects shows that the large changes induced by employment incentives are mainly compositional. A two‐state benchmark confirms that the multi‐stage structure is necessary to capture these distinctions, underscoring the need to balance fiscal sustainability with protection of vulnerable groups.

Publication Type:	Article
Additional Information:	© 2026 The Author(s). Journal of Risk and Insurance published by Wiley Periodicals LLC on behalf of American Risk and Insurance Association. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
Publisher Keywords:	financial decision, overlapping generations model, social disability pension
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Faculty of Actuarial Science & Insurance
SWORD Depositor:	Symplectic Administrator

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