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Increases in skewness and insurance

Author

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  • Thomas Eichner

    () (University of Hagen)

Abstract

The present paper analyzes how the welfare state, i.e., social insurance that works through redistributive taxation, should respond to increases in the skewness of the risk distribution. Income risks can be hedged either by individual self-insurance or by social insurance. It is shown that skewness-affine agents reduce both self-insurance and social insurance in response to an increase in income skewness. Thus countries with a more right-skewed income distribution have less redistribution.

Suggested Citation

  • Thomas Eichner, 2013. "Increases in skewness and insurance," Economics Bulletin, AccessEcon, vol. 33(4), pages 2672-2681.
  • Handle: RePEc:ebl:ecbull:eb-13-00702
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I4-P251.pdf
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    References listed on IDEAS

    as
    1. Sinn, Hans-Werner, 1995. " A Theory of the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 495-526, December.
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    3. Hans-Werner Sinn, 1996. "Social insurance, incentives and risk taking," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(3), pages 259-280, July.
    4. Lars Tyge Nielsen & Fatma Lajeri, 2000. "Parametric characterizations of risk aversion and prudence," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(2), pages 469-476.
    5. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-430, June.
    6. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
    7. Lane, Morton N., 2000. "Pricing Risk Transfer Transactions," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 30(02), pages 259-293, November.
    8. Ekern, Steinar, 1980. "Increasing Nth degree risk," Economics Letters, Elsevier, vol. 6(4), pages 329-333.
    9. Thomas Eichner & Andreas Wagener, 2004. "The Welfare State in a Changing Environment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(3), pages 313-331, May.
    10. Robert J. Gordon & Ian Dew-Becker, 2007. "Selected Issues in the Rise of Income Inequality," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(2), pages 169-192.
    11. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    12. Eichner, Thomas & Wagener, Andreas, 2011. "Increases in skewness and three-moment preferences," Mathematical Social Sciences, Elsevier, vol. 61(2), pages 109-113, March.
    13. W Henry Chiu, 2010. "Skewness Preference, Risk Taking and Expected Utility Maximisation," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 35(2), pages 108-129, December.
    14. Jonathan Eaton & Harvey S. Rosen, 1980. "Optimal Redistributive Taxation and Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 357-364.
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    More about this item

    Keywords

    self-insurance; social insurance; skewness; skewness affinity;

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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