An Experimental Analysis of Group Size and Risk Sharing
AbstractWe study the relationship between group size and the extent of risk sharing in an insurance game played over a number of periods with random idiosyncratic and aggregate shocks to income in each period. Risk sharing is attained via agents that receive a high endowment in one period making unilateral transfers to agents that receive a low endowment in that period. The complete risk sharing allocation is for all agents to place their endowments in a common pool, which is then shared equally among members of the group in every period. Theoretically, the larger the group size, the smaller the per capita dispersion in consumption and greater is the potential value of insurance. Field evidence however suggests that smaller groups do better than larger groups as far as risk sharing is concerned. Results from our experiments show that the extent of mutual insurance is significantly higher in smaller groups, though contributions to the pool are never close to what complete risk sharing requires.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 02/06.
Length: 42 pages
Date of creation: 02 Feb 2006
Date of revision:
Contact details of provider:
Postal: Department of Economics, Monash University, Victoria 3800, Australia
Web page: http://www.buseco.monash.edu.au/eco/
More information through EDIRC
Other versions of this item:
- A. Chaudhuri & L. Gangadharan & Pushkar Maitra, 2005. "An Experimental Analysis ofGroup Size and Risk Sharing," Department of Economics - Working Papers Series 955, The University of Melbourne.
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-17 (All new papers)
- NEP-EXP-2009-07-17 (Experimental Economics)
- NEP-IAS-2009-07-17 (Insurance Economics)
- NEP-MFD-2009-07-17 (Microfinance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marcel Fafchamps & Susan Lund, .
"Risk Sharing Networks in Rural Philippines,"
97014, Stanford University, Department of Economics.
- John Bone & John Hey & John Suckling, .
"A Simple Risk-Sharing Experiment,"
00/36, Department of Economics, University of York.
- Van Huyck, John B. & Gillette, Ann B. & Battalio, Raymond C., 1992. "Credible assignments in coordination games," Games and Economic Behavior, Elsevier, vol. 4(4), pages 606-626, October.
- Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
- Garance Genicot & Debraj Ray, 2003.
"Group Formation in Risk--Sharing Arrangements,"
Review of Economic Studies,
Wiley Blackwell, vol. 70(1), pages 87-113, January.
- Brown, Paul M. & Stewart, Steven, 1999. "Avoiding severe environmental consequences: evidence on the role of loss avoidance and risk attitudes," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 179-198, February.
- Charness, Gary & Rigotti, Luca & Rustichini, Aldo, 2003. "They are watching you: Social facilitation in institutions," University of California at Santa Barbara, Economics Working Paper Series qt37k9n337, Department of Economics, UC Santa Barbara.
- Abigail Barr, 2004.
"Risk Pooling, Commitment, and Information: An experimental test of two fundamental assumptions,"
Development and Comp Systems
- Abigail Barr, 2003. "Risk pooling, commitment and information: An experimental test of two fundamental assumptions," Framed Field Experiments 00124, The Field Experiments Website.
- Abigail Barr, 2003. "Risk Pooling, Commitment, and Information: An experimental test of two fundamental assumptions," Economics Series Working Papers WPS/2003-05, University of Oxford, Department of Economics.
- Abigail Barr, 2003. "Risk Pooling, Commitment and Information: An experimental test of two fundamental assumptions," Working Papers 2082, The Field Experiments Website.
- John B Van Huyck & Raymond C Battalio & Richard O Beil, 1997.
"Tacit coordination games, strategic uncertainty, and coordination failure,"
Levine's Working Paper Archive
1225, David K. Levine.
- Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1990. "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review, American Economic Association, vol. 80(1), pages 234-48, March.
- J. B. Van Huyck & R. C. Battalio & R. O. Beil, 2010. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 661465000000000393, David K. Levine.
- Gary S. Becker, 1974.
"A Theory of Social Interactions,"
NBER Working Papers
0042, National Bureau of Economic Research, Inc.
- Buckley, Edward & Croson, Rachel, 2006. "Income and wealth heterogeneity in the voluntary provision of linear public goods," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 935-955, May.
- Noussair, C.N. & Tucker, S., 2005.
"Combining monetary and social sanctions to promote cooperation,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-377935, Tilburg University.
- Charles Noussair & Steven Tucker, 2005. "Combining Monetary and Social Sanctions to Promote Cooperation," Economic Inquiry, Western Economic Association International, vol. 43(3), pages 649-660, July.
- Grimard, Franque, 1997. "Household consumption smoothing through ethnic ties: evidence from Cote d'Ivoire," Journal of Development Economics, Elsevier, vol. 53(2), pages 391-422, August.
- 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.
- Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
- Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
- Isaac, R. Mark & Walker, James M. & Williams, Arlington W., 1994. "Group size and the voluntary provision of public goods : Experimental evidence utilizing large groups," Journal of Public Economics, Elsevier, vol. 54(1), pages 1-36, May.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
- Garance Genicot & Gary Charness, 2004.
"An Experimental Test of Risk-Sharing Arrangements,"
2004 Meeting Papers
807, Society for Economic Dynamics.
- Isaac, R Mark & Walker, James M, 1988.
"Group Size Effects in Public Goods Provision: The Voluntary Contributions Mechanism,"
The Quarterly Journal of Economics,
MIT Press, vol. 103(1), pages 179-99, February.
- R. M. Isaac & J. M. Walker, 2010. "Group size effects in public goods provision: The voluntary contribution mechanism," Levine's Working Paper Archive 310, David K. Levine.
- de Janvry, Alain & Sadoulet, Elisabeth & Winters, Paul C. & Murgai, Rinku, 2000.
"Localized and Incomplete Mutual Insurance,"
12905, University of New England, School of Economics.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Selten, Reinhard & Ockenfels, Axel, 1998. "An experimental solidarity game," Journal of Economic Behavior & Organization, Elsevier, vol. 34(4), pages 517-539, March.
- Potters J.A.M. & Tausch F. & Riedl A.M., 2013.
"An experimental investigation of risk sharing and adverse selection,"
015, Maastricht University, Graduate School of Business and Economics (GSBE).
- Franziska Tausch & Jan Potters & Arno Riedl, 2013. "An Experimental Investigation of Risk Sharing and Adverse Selection," CESifo Working Paper Series 4192, CESifo Group Munich.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simon Angus).
If references are entirely missing, you can add them using this form.