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Attitudes Towards Large Income Risk in Welfare States: An International Comparison
Author(s) -
Schroyen Fred,
Aarbu Karl Ove
Publication year - 2018
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/ecca.12267
Subject(s) - generosity , economics , risk aversion (psychology) , social insurance , welfare , demographic economics , vulnerability (computing) , distribution (mathematics) , welfare state , actuarial science , public economics , expected utility hypothesis , financial economics , political science , market economy , mathematical analysis , computer security , mathematics , politics , computer science , law
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.