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Risk Sharing, Commitment and Information: An experimental analysis

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  • Abigail Barr
  • Garance Genicot

Abstract

This paper describes and analyzes the results of a unique field experiment especially designed to test the effects of the level of commitment and information available to individuals when sharing risk. We find that limiting exogenously provided commitment is associated with less risk sharing, while limiting information on defections can be associated with more risk sharing. These results can be understood by distinguishing between intrinsic and extrinsic incentives, and by recognizing that social sanctions are costly to inflict or that individuals suffer from time-inconsistent preferences. Comparing the groups formed within our experiment with the real life risk sharing networks in a few villages allows us to test the external validity of our experiment and suggests that the results are salient to our understanding of risk sharing arrangements observed in developing countries.

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File URL: http://www.csae.ox.ac.uk/workingpapers/pdfs/2007-17text.pdf
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Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2007-17.

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Date of creation: 2007
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Handle: RePEc:csa:wpaper:2007-17

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Keywords: Field experiment; risk sharing; social sanctions; insurance; limited commitment; asymmetry of information.;

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References

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  1. Garance Genicot & Gary Charness, 2004. "An Experimental Test of Risk-Sharing Arrangements," 2004 Meeting Papers 807, Society for Economic Dynamics.
  2. Laura Schechter, 2007. "Theft, Gift-Giving, and Trustworthiness: Honesty Is Its Own Reward in Rural Paraguay," American Economic Review, American Economic Association, vol. 97(5), pages 1560-1582, December.
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Citations

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Cited by:
  1. Broer, Tobias, 2011. "The wrong shape of insurance? What cross-sectional distributions tell us about models of consumption-smoothing," CEPR Discussion Papers 8701, C.E.P.R. Discussion Papers.
  2. Gary Charness, University of California, Santa Barbara and Garance Genicot,Georgetown University, 2004. "An Experimental Test of Risk-Sharing Arrangements," Working Papers gueconwpa~04-04-02, Georgetown University, Department of Economics.
  3. Michal Bauer & Julie Chytilová & Jonathan Morduch, 2008. "Behavioral Foundations of Microcredit: Experimental and Survey Evidence From Rural India," Working Papers IES 2008/28, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2008.
  4. Selim Gulesci, 2012. "Labor-tying and poverty in a rural economy:evidence from bangladesh," Working Papers 460, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Guido Friebel & Juan Miguel Gallego & Mariapia Mendola, 2011. "Xenophobic Attacks, Migration Intentions and Networks: Evidence from the South of Africa," Working Papers 213, University of Milano-Bicocca, Department of Economics, revised Nov 2011.
  6. Gustavo Adolfo Caballero Orozco, 2010. "Risk Preferences Under Extreme Poverty: A Field Experiment," DOCUMENTOS CEDE 007717, UNIVERSIDAD DE LOS ANDES-CEDE.
  7. Christine Binzel & Dietmar Fehr, 2010. "Social Relationships and Trust," SFB 649 Discussion Papers SFB649DP2010-028, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  8. Tobias Broer, 2009. "Stationary equilibrium distributions in economies with limited commitment," Economics Working Papers ECO2009/39, European University Institute.
  9. Jonathan Gheyssens & Isabel Günther, 2013. "Conditional cooperation among the poor: a new profile?," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 135, Courant Research Centre PEG.
  10. Chetan Dave & Catherine Eckel & Cathleen Johnson & Christian Rojas, 2010. "Eliciting risk preferences: When is simple better?," Journal of Risk and Uncertainty, Springer, vol. 41(3), pages 219-243, December.
  11. Bauer, Michal & Chytilová, Julie, 2009. "Women, Children and Patience: Experimental Evidence from Indian Villages," IZA Discussion Papers 4241, Institute for the Study of Labor (IZA).
  12. Landmann, Andreas & Vollan, Björn & Frölich, Markus, 2012. "Insurance versus Savings for the Poor: Why One Should Offer Either Both or None," IZA Discussion Papers 6298, Institute for the Study of Labor (IZA).
  13. Luis Roberto Martínez & Christian Jaramillo & Nicolas De Roux & Juan-Camilo Cárdenas, 2010. "It’s Not My Money: An Experiment on Risk Aversion and the House-money Effect," DOCUMENTOS CEDE 006712, UNIVERSIDAD DE LOS ANDES-CEDE.
  14. Ligon, Ethan A. & Schechter, Laura, 2011. "The Value of social networks in rural Paraguay," CUDARE Working Paper Series 1116, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  15. Landmann, Andreas & Vollan, Björn & Frölich, Markus, 2011. "Saving, Microinsurance: Why You Should Do Both or Nothing. A Behavioral Experiment on the Philippines," Proceedings of the German Development Economics Conference, Berlin 2011 51, Verein für Socialpolitik, Research Committee Development Economics.

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