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Attitudes towards large income risk in welfare states: an international comparison

Author

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  • Schroyen, Fred

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Aarbu, Karl Ove

    (Tryg Forsikring)

Abstract

Using survey data and the instrument developed by Barsky et al.(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 2006) . Under a CRRA assumption, the sample average for the coefficient of relative risk aversion is 3.8 with a standard deviation of 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 US. 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 & Aarbu, Karl Ove, 2017. "Attitudes towards large income risk in welfare states: an international comparison," Discussion Paper Series in Economics 20/2017, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2017_020
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    References listed on IDEAS

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    Cited by:

    1. Kent D. Daniel & Robert B. Litterman & Gernot Wagner, 2016. "Applying Asset Pricing Theory to Calibrate the Price of Climate Risk," NBER Working Papers 22795, National Bureau of Economic Research, Inc.
    2. Adam Michael Bauer & Cristian Proistosescu & Gernot Wagner, 2023. "Carbon Dioxide as a Risky Asset," CESifo Working Paper Series 10278, CESifo.

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    More about this item

    Keywords

    Risk aversion; stated preferences; income lotteries; background risk; risk vulnerability; welfare state.;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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