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Incentive for risk sharing and trust formation: experimental and survey evidence from Bangladesh

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  • Masahiro Shoji

Abstract

Although interpersonal trust is essential for socioeconomic development, the formation mechanism of trust is not well understood. Using dyadic data from an experiment and a household survey in rural Bangladesh, this study evaluates whether the incentive for risk sharing increases trust between villagers. Incentive for risk sharing in the dyad is characterized by their negative income correlation, large difference in their risk preferences, and large difference in their income volatilities. The empirical results demonstrate supporting evidence for this hypothesis: incentive for risk sharing, particularly negative income correlation, facilitates trust. These findings suggest that the introduction of safety net programmes such as health insurance, which reduce the incentive for risk sharing, may break down trust. This implication could make an important contribution to our understanding of the effect of industrialization on social capital—an effect that has long been discussed.

Suggested Citation

  • Masahiro Shoji, 2018. "Incentive for risk sharing and trust formation: experimental and survey evidence from Bangladesh," Oxford Economic Papers, Oxford University Press, vol. 70(4), pages 1062-1083.
    • Handle: RePEc:oup:oxecpp:v:70:y:2018:i:4:p:1062-1083.
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    File URL: http://hdl.handle.net/10.1093/oep/gpy019
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    Cited by:

    1. Stephane, Victor, 2021. "Hiding behind the veil of ashes: Social capital in the wake of natural disasters," World Development, Elsevier, vol. 145(C).
    2. Aoyagi, Keitaro & Sawada, Yasuyuki & Shoji, Masahiro, 2022. "Irrigation infrastructure and trust: Evidence from natural and lab-in-the-field experiments in rural communities," World Development, Elsevier, vol. 156(C).
    3. Nakabayashi, Masaki, 2019. "From family security to the welfare state: Path dependency of social security on the difference in legal origins," Economic Modelling, Elsevier, vol. 82(C), pages 280-293.
    4. Yuzuka KASHIWAGI & Yasuyuki TODO, 2022. "Trade Disruption and Risk Perception," Discussion papers 22086, Research Institute of Economy, Trade and Industry (RIETI).
    5. Bulaon, June Patrick & Shoji, Masahiro, 2022. "Disaster Exposure in Childhood and Adult Noncognitive Skill: Evidence from the Philippines," MPRA Paper 112913, University Library of Munich, Germany.
    6. Shoji, Masahiro, 2020. "Early-Life Circumstances and Adult Locus of Control: Evidence from 46 Developing Countries," MPRA Paper 99987, University Library of Munich, Germany.
    7. Shoji, Masahiro, 2020. "Guilt and Antisocial Conformism: Experimental Evidence from Bangladesh," MPRA Paper 100735, University Library of Munich, Germany.
    8. Yuzuka KASHIWAGI & Yasuyuki TODO, 2021. "How Do Disasters Change Inter-Group Perceptions? Evidence from the 2018 Sulawesi Earthquake," Discussion papers 21082, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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