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Informal Risk Sharing in an Infinite-Horizon Experiment

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Author Info
Gary Charness
Garance Genicot

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Abstract

Our laboratory study of risk sharing without commitment captures the main features of a simple model of voluntary insurance. Participants are paired in matches with stochastic endings. Each period they receive fixed endowments and one of the pair (randomly-drawn) also receives an additional amount; they can then make voluntary transfers to each other. While smoothing consumption is attractive, only self-enforcing risk sharing is possible. We find evidence supporting the theory: transfers provide insurance to individuals, a higher match continuation probability raises transfers and more risk-averse individuals make larger transfers. More surprisingly, transfers decrease with ex ante inequality, potentially reflecting considerations of identity. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2009.02248.x
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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 119 (2009)
Issue (Month): 537 (04)
Pages: 796-825
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Handle: RePEc:ecj:econjl:v:119:y:2009:i:537:p:796-825

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  1. Stefan Dercon & Pramila Krishnan, 2000. "In Sickness and in Health: Risk Sharing within Households in Rural Ethiopia," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 688-727, August. [Downloadable!] (restricted)
  2. Gary Charness & Nuno Garoupa, 2000. "Reputation, Honesty, and Efficiency with Insider Information: an Experiment," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 9(3), pages 425-451, 06. [Downloadable!] (restricted)
  3. Kocherlakota, Narayana R, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Blackwell Publishing, vol. 63(4), pages 595-609, October. [Downloadable!] (restricted)
  4. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February. [Downloadable!] (restricted)
  5. John Bone & John Hey & John Suckling, 2004. "A Simple Risk-Sharing Experiment," Journal of Risk and Uncertainty, Springer, vol. 28(1), pages 23-38, January. [Downloadable!] (restricted)
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  6. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series 1042, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  7. Kenneth M. Kletzer & Brian D. Wright, 2000. "Sovereign Debt as Intertemporal Barter," American Economic Review, American Economic Association, vol. 90(3), pages 621-639, June. [Downloadable!] (restricted)
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  8. Jalan, Jyotsna & Ravallion, Martin, 1999. "Are the poor less well insured? Evidence on vulnerability to income risk in rural China," Journal of Development Economics, Elsevier, vol. 58(1), pages 61-81, February. [Downloadable!] (restricted)
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  9. Cason, Timothy N., 1995. "Cheap talk price signaling in laboratory markets," Information Economics and Policy, Elsevier, vol. 7(2), pages 183-204, June. [Downloadable!] (restricted)
  10. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August. [Downloadable!] (restricted)
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  11. Paul Gertler & Jonathan Gruber, 2002. "Insuring Consumption Against Illness," American Economic Review, American Economic Association, vol. 92(1), pages 51-70, March. [Downloadable!]
  12. Kimball, Miles S, 1988. "Farmers' Cooperatives as Behavior Toward Risk," American Economic Review, American Economic Association, vol. 78(1), pages 224-32, March. [Downloadable!] (restricted)
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  14. Pedro Dal Bó, 2005. "Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games," American Economic Review, American Economic Association, vol. 95(5), pages 1591-1604, December. [Downloadable!]
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  15. Gary Charness & Luca Rigotti & Aldo Rustichini, 2007. "Individual Behavior and Group Membership," American Economic Review, American Economic Association, vol. 97(4), pages 1340-1352, September. [Downloadable!]
  16. Selten, Reinhard & Ockenfels, Axel, 1998. "An experimental solidarity game," Journal of Economic Behavior & Organization, Elsevier, vol. 34(4), pages 517-539, March. [Downloadable!] (restricted)
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  20. Camerer, Colin F & Ho, Teck-Hua, 1994. "Violations of the Betweenness Axiom and Nonlinearity in Probability," Journal of Risk and Uncertainty, Springer, vol. 8(2), pages 167-96, March.
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