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Risk Aversion and Reservation Wages

SOEPpapers 23, 19 S. + Anh.

Markus Pannenberg


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This study examines the relationship between individual risk aversion and reservation wages using a novel set of direct measures of individual risk attitudes from the German Socio-Economic Panel (SOEP). We find that risk aversion has a significantly negative impact on the level of reservation wages. Moreover, we show that the elasticity of the reservation wage with respect to unemployment benefits is remarkably lower for risk-averse job seekers than for risk-loving job seekers. The results are consistent with an interpretation that risk-averse job seekers set their reservation wage levels sufficiently low, so that they accept almost every job offer.

JEL-Classification: J64;J65
Keywords: Risk Aversion, Reservation Wages, Survey Data
Frei zugängliche Version: (econstor)