The Value of Private Risk Versus the Value of Public Risk: An Experimental Analysis of the Johannesson et al. Conjecture

Abstract

WP 2008-13 June 2008JEL Classification Codes: D81; D64; H41; C91; C92; D72In 1996 Johannesson et al. published a paper in this journal entitled “The Value of Private Safety versus the Value of Public Safety.” Based on preliminary evidence from a hypothetical contingent valuation study, these authors argue that consumers behave as “pure altruists” and reject the notion of paternalistic preferences for safety in a coercive tax setting. These pure altruists consider the cost of a program that might be imposed on other voters when they decide whether to vote for or against public safety programs. The authors conclude that further empirical research in this area is warranted. This paper presents a set of laboratory economics experiments to test Johannesson et al.’s conjecture under controlled conditions in which participants face an actual risk of financial loss. The laboratory results extend those of Johannesson et al., providing strong evidence of pure altruism but limited support for paternalistic altruism for risk.Funding for this paper was provided by the National Science Foundation (NSF SES 0108667), USDA regional project W-1133 through Cornell University, and the Kenneth Robinson Chair in Applied Economics