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Evolving Informal Risk-Sharing Cooperatives and Other-Regarding Preferences

In this paper we present a model of formation and destruction of informal cooperatives in a population of agents who perform a risky activity and who are heterogeneous in terms of success in their actions. Although some agents have high-risk and others low-risk, our model displays a dynamics with cooperatives in which agents share equally their income with a certain stability. We are interested in studying at the same time the existence of cooperatives, their ability to integrate a large proportion of agents and the degree of segregation of these cooperatives. Three factors can explain the existence, stability and lack of segregation. First, we show that the classical explanation in economics holds within the framework of our model: when agents are risk averse, high success agents can share with low success agents so that to stabilize the value of their income - the higher the risk aversion, the more stable the cooperatives and the lower the segregation. Learning can explain in a small proportion the existence of cooperatives: we designed agents so that they have to learn whether they are high or low-risk, and while they are learning, they tend to create cooperatives that can last. Eventually we worked on the integration of other-regarding preferences in the model, with two different definitions. As expected, the influence of other-regarding preferences is to increase stability and decrease segregation, and the two models of rationality react differently to the type of network in which the agents are immersed. This paper, mainly exploratory, presents our model and shows the influence of the definition of network as well as all other factors presented before. In that sense, although we have mainly done a rough exploration of its relevant parameters for the moment, it exposes different insights that can be gained by its study.

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File URL: http://www.amse-aixmarseille.fr/sites/default/files/_dt/2012/wp_2012_-_nr_43.pdf
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Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1243.

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Length: 26 pages
Date of creation: Dec 2012
Date of revision: Dec 2012
Handle: RePEc:aim:wpaimx:1243
Contact details of provider: Web page: http://www.amse-aixmarseille.fr/en

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  1. Fernando Jaramillo & Hubert Kempf & Fabien Moizeau, 2013. "Heterogeneity and the formation of risk - sharing coalitions," DOCUMENTOS DE TRABAJO 011013, UNIVERSIDAD DEL ROSARIO.
  2. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May.
  3. Marcle Fafchamps, 1999. "Risk sharing and quasi-credit," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(3), pages 257-278.
  4. A. Roth & I. Er’ev, 2010. "Learning in Extensive Form Games: Experimental Data and Simple Dynamic Models in the Intermediate Run," Levine's Working Paper Archive 387, David K. Levine.
  5. Moulet, Sonia & Rouchier, Juliette, 2008. "The influence of seller learning and time constraints on sequential bargaining in an artificial perishable goods market," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2322-2348, July.
  6. Marcel Fafchamps & Susan Lund, . "Risk Sharing Networks in Rural Philippines," Working Papers 97014, Stanford University, Department of Economics.
  7. Thomas Brenner, 2004. "Agent Learning Representation - Advice in Modelling Economic Learning," Papers on Economics and Evolution 2004-16, Philipps University Marburg, Department of Geography.
  8. Marcel Fafchamps & Flore Gubert, 2005. "The Formation of Risk Sharing Networks," Economics Series Working Papers GPRG-WPS-037, University of Oxford, Department of Economics.
  9. Raj Chetty, 2003. "A New Method of Estimating Risk Aversion," NBER Working Papers 9988, National Bureau of Economic Research, Inc.
  10. 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.
  11. Ingela Alger & J�rgen W. Weibull, 2010. "Kinship, Incentives, and Evolution," American Economic Review, American Economic Association, vol. 100(4), pages 1725-58, September.
  12. Bloch, Francis & Genicot, Garance & Ray, Debraj, 2008. "Informal insurance in social networks," Journal of Economic Theory, Elsevier, vol. 143(1), pages 36-58, November.
  13. Donald Meyer & Jack Meyer, 2005. "Relative Risk Aversion: What Do We Know?," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 243-262, December.
  14. Renaud Bourl�s & Dominique Henriet, 2012. "Risk-sharing Contracts with Asymmetric Information," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 37(1), pages 27-56, March.
  15. Roth, Alvin E. & Erev, Ido, 1995. "Learning in extensive-form games: Experimental data and simple dynamic models in the intermediate term," Games and Economic Behavior, Elsevier, vol. 8(1), pages 164-212.
  16. Rouchier, Juliette & Bousquet, Francois & Requier-Desjardins, Melanie & Antona, Martine, 2001. "A multi-agent model for describing transhumance in North Cameroon: Comparison of different rationality to develop a routine," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 527-559, March.
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