SECURE JOB AND RISKY CHOICES? AN ANALYSIS OF STATE AND WEALTH DEPENDENCE OF RISK AVERSION USING SEVERANCE PAY ALLOCATION

Patrizia Ordine () and Giuseppe Rose

No 201407, Working Papers from Università della Calabria, Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF

Abstract: State- and Wealth-dependence of individual risk preferences are investigated using Italian panel data. To elicit risk aversion, a social security policy reform occurred in Italy in 2008 is exploited. This law asks private sector employees to invest their accruing severance pay in three alternative pension funds strongly heterogeneous in terms of risk. The determinants of this choice are analyzed and the focus is posed on the effect of wealth and job-status. These are investigated considering i) the behavior of workers changing job contract; ii) the presence of different income prospects associated to labor contracts'?length; iii) the exogenous threshold provided by fi?rm size in terms of Employment Protection Legislation. Fixed-Effects estimates show that preferred funds - and consequently risk preferences - are not affected by wealth modi?cations pointing out for the presence of Constant Relative Risk Aversion. Conversely, job contract characteristics in terms of job protection from the risk of layoff appear to signifi?cantly affect risk attitude pointing for the existence of a State Dependent Constant Relative Risk Aversion.

Keywords: Relative Risk Aversion; Pension Funds; Panel Data; Job Movers (search for similar items in EconPapers)
JEL-codes: D10 D80 D81 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2014-07
New Economics Papers: this item is included in nep-eur and nep-upt
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