What Kind of Welfare State Do You Prefer? An Experiment on Framing the Social Insurance Scheme

Source: Francesco Farina, Stefania Ottone, Ferruccio Ponzano, University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 295, March 9, 2015

From the abstract:
A real-effort experiment is conducted in order to detect preferences for one of three different models of Welfare State characterized by different schemes of tax-and-transfers. Experimental subjects have to choose (both under and without veil of ignorance concerning their position in the society created in the lab) among: a) a baseline proportional scheme, where the State is neutral with respect to risk heterogeneity; b) an actuarially-fair scheme where low-ability and low-earnings subjects bear individual full responsibility for risk exposure; c) a progressive scheme where mutual risk insurance spreads risk across all subjects, so that low-ability and low-earnings individuals are compensated. The aim is to investigate how subjects posit with respect to the task performed by the Welfare State, which is the interaction between inequality of opportunity and income inequality facing low-ability and low-earnings individuals due to their relatively higher risk exposure. Our most relevant finding is that preference is not much motivated by a justice principle, but mainly by the expectation on one’s own position in the society.