Attitudes Towards Large Income Risk in Welfare States: An International Comparison

27 Pages Posted: 17 Sep 2018

See all articles by Fred Schroyen

Fred Schroyen

Norwegian School of Economics (NHH) - Department of Economics

Karl Ove Aarbu

Norwegian School of Economics (NHH) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2018

Abstract

Using survey data and the instrument developed by Barsky et al. ([Barsky, R. B., 1997]), we estimate the distribution of attitudes towards income risk in a country where many employment and health‐related risks are generously covered by a tax‐financed social insurance system (Norway in 2006). Under a constant relative risk aversion assumption, the sample average for the coefficient of relative risk aversion is 3.8 with standard deviation 2.3. This number is then contrasted to that for five other OECD countries where risk attitudes have been measured using the same instrument and also prior to the financial crisis: Chile, France, Italy, the Netherlands and the USA. When we relate this distribution for stated relative risk aversion to that for generosity of social insurance and the risks related to employment and health expenditure, a picture emerges suggesting that more extensive welfare states induce higher risk tolerance for foreground risks—a relationship that is in line with the theory on risk vulnerability.

Suggested Citation

Schroyen, Fred and Aarbu, Karl Ove, Attitudes Towards Large Income Risk in Welfare States: An International Comparison (October 2018). Economica, Vol. 85, Issue 340, pp. 846-872, 2018. Available at SSRN: https://ssrn.com/abstract=3246024 or http://dx.doi.org/10.1111/ecca.12267

Fred Schroyen (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Karl Ove Aarbu

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

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