Workers' Compensation and Moral Hazard in Tunisia

Moral hazard is a problem of asymmetric information that plays a central role in numerous contractual relationships and may lead to suboptimal resource allocation. Both ex ante and ex post moral hazard problems in workers' compensation (WC) have been extensively analysed in developed countries. The main objective of this paper is to test the presence of ex post moral hazard in the Tunisian context. To our knowledge, this is the first analysis on this topic in a developing country, Tunisia. It is particularly important to study moral hazard problems in developing countries, since the negative impacts of such problems could be exacerbated in the developing world. Dionne and St-Michel (1991) have developed a methodology for testing for the presence of ex post moral hazard in the context of a more generous WC regime in Quebec. The Tunisian institutional context that we study is similar to that prevailing in Quebec; that is, in 1995, there was a significant increase in the generosity of the WC regime. Applying a more general econometric technique than that used by Dionne and St-Michel, we find that this increase in the generosity of WC led to longer periods out of work for recovery. This increase is more pronounced in the case of difficult-to-diagnose injuries.