What Happens When Compensation for Whiplash Claims Is Made More Generous?

We examine the effect of a Danish reform in 2002 that increased compensation for permanent loss of earnings capacity and extended the period when whiplash claimants could get compensation for temporary loss of earnings. The first is subject to extensive state verification by the government while the second is not. Using weekly data about disability, drug purchases and use of health services during 1996-2007, we find that the reform increased the proportion on temporary disability by about 18 percent without a matching increase in drug purchases or the use of health services. We find no effect of compensation for permanent loss of earnings capacity.