Estimating The Effect of Discretion in Disability Insurance Benefit Entitlement Process: A Simulation Study

Street-level bureaucrats’ discretion in policy implementation has gained prominence in the economic literature, yet its welfare effects have been overlooked. At the same time, the extensive literature on disability insurance (DI) has neglected the potential effects of discretion in entitlement procedures. This work aims to provide an econometric tool that would allow us in future research to simultaneously fill these two gaps in the literature. Specifically, we study a novel bunching methodology that allows to investigate the effect of discretion in DI benefit entitlement processes on individual post-disability labor market outcomes. We test the performance of our model in synthetic simulated environments that vary in three main dimensions: the sample size, the extent of discretion use and its effect on both continuous and binary outcome variables. Contingent on data availability, our future research targets the Dutch DI benefit entitlement system, characterized by selective use of discretion of DI occupational assessors. Our ultimate goal is to contribute to the debate concerning the trade-off between the equity and standardization of benefit allocation processes and the provision of flexible and tailored service.