Domain-specific risk and public policy

Petri Böckerman (), Ohto Kanninen and Ilpo Suoniemi

No 322, Working Papers from Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE

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.

Keywords: risk; risk aversion; state-dependence; social insurance; sickness absence (search for similar items in EconPapers)
JEL-codes: D02 H55 I13 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2018-05-18
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://labore.fi/wp-content/uploads/2018/05/Tyopapereita-322.pdf First version, 2018 (application/pdf)

Related works:
Working Paper: Domain-Specific Risk and Public Policy (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pst:wpaper:322

Access Statistics for this paper

More papers in Working Papers from Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE Contact information at EDIRC.
Bibliographic data for series maintained by Jaana Toivainen ().