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The impact of private participation and countervailing information on disability costs: evidence from Chile



Many social security systems face high and escalating disability costs. In Chile's new system, the disability assessment procedure includes participation by private pension funds (AFPs) and insurance companies, who finance the benefit, have a direct pecuniary interest in controlling costs and are able to pursue this objective by helping to set criteria and providing countervailing information. We hypothesize that these procedures and incentives will keep costs low, by cutting the incidence of successful claims. Using the Cox proportional hazard model and a retrospective sample of new and old-system affiliates (EPS, 2002), we find that disability hazard rates are only 20–35% as high in the new system as in the old traditional system. Analysis of mortality rates suggests that the new system has accurately targeted individuals with more severe medical problems.


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We appreciate support from the Social Security Administration through the Michigan Retirement Research Center. The findings and conclusions expressed are solely those of the authors and do not represent the views of the Social Security Administration or the Michigan Retirement Research Center. We thank the representatives of AFPs, insurance companies, the Association of AFPs and the Superintendencia of AFPs for their assistance, Juan Pablo Contreras and Janette Kawachi who helped us to organize the data for a previous version, and Ruben Castro and Pat Wiese for useful exchanges of ideas and information.



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The impact of private participation and countervailing information on disability costs: evidence from Chile



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