Becker Friedman Institute

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Sick of the Welfare State? Adaptation in the Demand for Social Insurance

We argue that the supply of social insurance programs has long term effects on individual demand for program benefits. We postulate a model where the utility of taking up social insurance benefits depends on older generations’ past behavior, and we estimate the model using individual panel data. This intertemporal mechanism can account for three-quarters of the younger generations’ higher demand for social insurance benefits. The influence of older generations’ behavior remains when we instrument using mortality rates.

Authors: 
Martin Ljunge, University of Copenhagen
Publication Date: 
November, 2010
Publication Status: