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How much social insurance do you want? An experimental study

Friedel Bolle, Hannah Liepmann and Claudia Vogel

Journal of Economic Psychology, 2012, vol. 33, issue 6, 1170-1181

Abstract: 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.

Keywords: Solidarity; Social insurance; Experimental economics (search for similar items in EconPapers)
JEL-codes: D31 D71 H42 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1016/j.joep.2012.07.008

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