Charles River Associates

A pervasive concern with the use of self-reported health and disability measures in behavioral models is that they are biased and endogenous. A commonly suggested explanation is that survey respondents exaggerate the severity of health problems and incidence of disabilities in order to rationalize labor force non-participation, application for disability benefits and/or receipt of those benefits. This paper re-examines this issue using a self-reported indicator of disability status from the Health and Retire-ment Study (HRS). Using a bivariate probit model we test and are unable to reject the hypothesis that the self-reported disability measure is an exogenous explanatory variable in a model of an individual’s decision to apply for DI benefits or Social Security Administration’s decision to award benefits. We fur-ther study a subsample of individuals who applied for Disability Insurance and Supplemental Securit