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| Title:
Comparing Option Value and Dynamic Programming Model Estimates of Social Security Disability Insurance Application
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| Author(s):
Gulcin Gumus, Richard V. Burkhauser and J. S. Butler
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| Keywords:
Social Security Disability Insurance, dynamic structural models, Health and Retirement Survey
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| Abstact: |
This paper develops dynamic structural models --option value and dynamic programming-- of the Social Security Disability Insurance application decision. We estimate the time to application from the point at which a health condition first begins to affect the kind or amount of work that a currently employed person can do. We use the Health and Retirement Study augmented by linked restricted access Social Security earnings record data in our estimations. We test both the in-sample and out-of-sample predictive accuracy of our models using multinomial likelihood ratio tests. Based on their predictive validity, we find that our option value model is superior to both our dynamic programming model and our reduced form hazard model.
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