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Informal Risk Sharing in an Infinite-Horizon Experiment

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  • Gary Charness
  • Garance Genicot

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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Bibliographic 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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Cited by:
  1. Ruth Hill & Angelino Viceisza, 2012. "A field experiment on the impact of weather shocks and insurance on risky investment," Experimental Economics, Springer, vol. 15(2), pages 341-371, June.
  2. Pascaline Dupas & Jonathan Robinson, 2013. "Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 163-92, January.
  3. Katerina Sherstyuk & Nori Tarui & Tatsuyoshi Saijo, 2011. "Payment Schemes in Infinite-Horizon Experimental Games," Working Papers 201118, University of Hawaii at Manoa, Department of Economics.
  4. Charness, Gary & Viceisza, Angelino, 2012. "Comprehension and Risk Elicitation in the Field: Evidence from Rural Senegal," University of California at Santa Barbara, Economics Working Paper Series qt5512d150, Department of Economics, UC Santa Barbara.
  5. Robinson, Jonathan, 2011. "Limited insurance within the household: evidence from a field experiment in Kenya," MPRA Paper 32667, University Library of Munich, Germany.
  6. Tausch Franziska & Potters Jan & Riedl Arno, 2010. "Preferences for Redistribution and Pensions: What Can We Learn from Experiments?," Research Memorandum 043, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  7. Filippin, A. & Crosetto, P., 2014. "A reconsideration of gender differences in risk attitudes," Working Papers 2014-01, Grenoble Applied Economics Laboratory (GAEL).
  8. Hill, Ruth Vargas & Viceisza, Angelino, 2010. "An experiment on the impact of weather shocks and insurance on risky investment," IFPRI discussion papers 974, International Food Policy Research Institute (IFPRI).
  9. Lucy Ackert & Ann Gillette & Jorge Martinez-Vazquez & Mark Rider, 2011. "Are benevolent dictators altruistic in groups? A within-subject design," Experimental Economics, Springer, vol. 14(3), pages 307-321, September.

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