The Spirit of the Welfare State? Adaptation in the Demand for Social Insurance

Young generations demand substantially more social insurance than older generations, although program rules have been constant for decades. I postulate a model where the utility of taking up social insurance benefits depends on the past behavior of older generations. The model is estimated with individual panel data. The intertemporal mechanism estimated can account for half of the younger generations' higher demand for social insurance benefits. The influence of older generations' behavior remains when instrumenting using mortality rates, which makes a compelling case for a causal intertemporal influence on individual demand