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How much social insurance do you want? An experimental study

  • Bolle, Friedel
  • Liepmann, Hannah
  • Vogel, Claudia

Social insurance such as unemployment insurance is in many countries mandatory for the majority of workers. The extent of such insurance is determined by a political process, i.e. ultimately by the workers themselves. If unemployment were purely accidental then all risk averse workers should vote for a party which promises complete coverage of the unemployment risk. In an experimental investigation on the basis of the Solidarity Game (Selten & Ockenfels, 1998) we compare voluntary ex post-solidarity transfers toward unfortunate low income subjects with mandatory solidarity transfers for which the rules are determined ex ante in a voting procedure. Less than a quarter of our subjects vote for complete coverage of their and others’ risks and less than 12% vote for zero transfers. This result can neither be explained by Expected Utility Theory nor by income based social preferences nor by standard parameterizations of Prospect Theory (Kahneman & Tversky, 1979; Tversky & Kahneman, 1992). The results are compatible with a warm glow approach (Andreoni, 1990) which extends to mandatory transfers.

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Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 33 (2012)
Issue (Month): 6 ()
Pages: 1170-1181

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Handle: RePEc:eee:joepsy:v:33:y:2012:i:6:p:1170-1181
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