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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 University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/2007-17.

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Date of creation: 01 Aug 2007
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Handle: RePEc:oxf:wpaper:wps/2007-17

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Related research

Keywords: Field Experiment; Risk Sharing; Social Sanctions; Insurance; Limited Commitment; Asymmetry of Information;

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  1. Jeffrey Carpenter & Erika Seki, 2011. "Do Social Preferences Increase Productivity? Field Experimental Evidence From Fishermen In Toyama Bay," Economic Inquiry, Western Economic Association International, vol. 49(2), pages 612-630, 04.
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  5. Garance Genicot & Debraj Ray, 2003. "Group Formation in Risk-Sharing Arrangements," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 87-113.
  6. 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.
  7. Rosenzweig, Mark R. & Stark, Oded, 1987. "Consumption Smoothing, Migration and Marriage: Evidence from Rural India," Bulletins 7515, University of Minnesota, Economic Development Center.
  8. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  9. Holzmann, Robert & Packard, Truman & Cuesta, Jose, 2000. "Extending coverage in multi-pillar pension systems : constraints and hypotheses, preliminary evidence and future research agenda," Social Protection Discussion Papers 21303, The World Bank.
  10. 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.
  11. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
  12. Hans Binswanger, 1980. "Attitudes toward risk: Experimental measurement in rural india," Artefactual Field Experiments 00009, The Field Experiments Website.
  13. Rege, Mari & Telle, Kjetil, 2004. "The impact of social approval and framing on cooperation in public good situations," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1625-1644, July.
  14. Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 495-526, July.
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