IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp11539.html
   My bibliography  Save this paper

Domain-Specific Risk and Public Policy

Author

Listed:
  • Kanninen, Ohto

    () (Labour Institute for Economic Research)

  • Böckerman, Petri

    () (Labour Institute for Economic Research)

  • Suoniemi, Ilpo

    () (Labour Institute for Economic Research)

Abstract

We develop a method to estimate domain-specific risk. We apply the method to sickness insurance by fitting a utility function at the individual level, using European survey data on life satisfaction. Three results stand out. First, relative risk aversion increases with income. Second, marginal utility is higher in the sick state conditional on income, due to an observed fixed cost of sickness. Third, the domain-specificity of risk shifts the focus on the smoothing of utility, not consumption. The optimal policy rule implies that the replacement rates should be non-linear and decrease with income.

Suggested Citation

  • Kanninen, Ohto & Böckerman, Petri & Suoniemi, Ilpo, 2018. "Domain-Specific Risk and Public Policy," IZA Discussion Papers 11539, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11539
    as

    Download full text from publisher

    File URL: http://ftp.iza.org/dp11539.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. PHLIPS, Louis, 1978. "The demand for leisure and money," CORE Discussion Papers RP 342, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Phlips, Louis, 1978. "The Demand for Leisure and Money," Econometrica, Econometric Society, vol. 46(5), pages 1025-1043, September.
    3. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    4. repec:hrv:faseco:34330197 is not listed on IDEAS
    5. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-926, Sept./Oct.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    risk; risk aversion; state-dependence; social insurance; sickness absence;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp11539. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak). General contact details of provider: http://www.iza.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.