Adverse Selection in Disability Payments

The Great Silence by Juliet Nicolson presents information on disability payments to injured World War I veterans:? 16 shillings per week (80 pence to those unfamiliar with older British money) for the loss of a right arm, 15 shillings for the loss of a left arm. Since about 90 percent of people are right-handed, this is more?equitable than the reverse.? But why not equality?? I assume the argument was that for most people (right-handers), the loss of a left arm was less serious, so it should be compensated less.

Why not pay the same, higher rate for a right-arm loss by right-handers, left-arm loss by left-handers? Were the authorities worried that people would claim that, whichever arm was lost, it was the one they used most-essentially?adverse selection? Were the administrative costs of determining handed-ness in offering compensation too high to overcome this selection problem?

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  1. Toby Fee says:

    Well, the classic way to test dominant hands was to measure the strength of both hands….

    Difficult if one of the hands is at the bottom of a French ditch.

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  2. Eileen Wyatt says:

    Let’s not forget historical context: people who were old enough to fight in WWI would have been raised at a time when natural left-handers were routinely retrained to treat their right hands as dominant. The proportion of functional left-handers in the adult male population would therefore have been much lower than today’s ~10%.

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  3. Ghost says:

    It’s for the two reasons you highlighted, though it wouldn’t be adverse selection — it would be fraud.

    Adverse Selection does not imply cheating the insurance company, whereas Fraud does. In the case of losing an arm, whichever sided-arm, there isn’t any adverse selection because adverse selection occurs BEFORE the purchase of the insurance, whereas the events you described would occur AFTER the purchase.

    When someone bought this coverage, none of them would have qualified as being “adversely selected,” i.e, these insureds still had both arms before the purchase. Adverse Selection occurs when an insured purchases coverage for a known existing- or higher-than-likely probability of developing that condition, i.e., smokers buying life insurance or diabetics purchasing medical insurance.

    For the difference in the payout of 16 shillings versus 15 shillings, why would the insurance company spend more to determine which arm was the dominant arm used by the claimant? That’s why there’s a stated schedule of benefits — nothing more, nothing less.

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  4. Tzimiskes says:

    WW1, I’d guess it was an administrative problem. Record keeping was still pretty expensive back then.

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  5. ak says:

    the administrative costs to find the handedness of a one handed man would be high indeed

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  6. di says:

    Was it common back then in England to force natural left-handers to be right handed, so there would be extremely few identifiable left-handers? These would be people growing up as children in the 1890-1900 decades.

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  7. Eva says:

    Acutally, being right-handed I’d say my right arm is worth a lot more than 1/16 more than my left arm. So the differential should be larger. The way it is set up, it is a relatively better deal (considering the value of the arm vs the marginal loss in disability payment) to be a right-handed person loosing a left arm – or a left-handed person loosing a right arm (they are even better off than the right-handed ones losing the left arm). If the payment was structured correctly, the costs of losing the arm should be equivalent to the payment, so it wouldn’t matter which arm you lose.

    So I wonder which arm people are more likely to lose. My guess would be it is the dominant one, but I don’t know. Just looking at the right-handed case, as a result, people are more likely to lose the arm that is less good value for money to lose when looking at the marginal benefit (1 shilling).

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  8. Jeremy says:

    Yes, it was common to force left-handers to write right handed back then. it was still common in the 1970s! — it happened to my brother-in-law

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