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Sharing as Risk Pooling in a Social Dilemma Experiment

Author

Listed:
  • Todd L. Cherry

    () (Appalachian State University, CICERO Center for International Climate and Environmental Research)

  • E. Lance Howe

    () (University of Alaska Anchorage)

  • James J. Murphy

    () (University of Alaska Anchorage, Nankai University, Chapman University)

Abstract

In rural economies with missing or incomplete markets, idiosyncratic risk is frequently pooled through informal networks. Idiosyncratic shocks, however, are not limited to private goods but can also restrict an individual from partaking in or benefiting from a collective activity. In these situations, a group must decide whether to provide insurance to the affected member. In this paper, we describe results of a laboratory experiment designed to test whether a simple sharing institution can sustain risk pooling in a social dilemma with idiosyncratic risk. We test whether risk can be pooled without a commitment device and, separately, whether effective risk pooling induces greater cooperation in the social dilemma. We find that even in the absence of a commitment device or reputational considerations, subjects voluntarily pool risk thereby reducing variance in individual earnings. In spite of effective risk pooling, however, cooperation in the social dilemma is unaffected.

Suggested Citation

  • Todd L. Cherry & E. Lance Howe & James J. Murphy, 2015. "Sharing as Risk Pooling in a Social Dilemma Experiment," Working Papers 15-03, Chapman University, Economic Science Institute.
  • Handle: RePEc:chu:wpaper:15-03
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. E Lance Howe & James J Murphy & Drew Gerkey & Colin Thor West, 2016. "Indirect Reciprocity, Resource Sharing, and Environmental Risk: Evidence from Field Experiments in Siberia," PLOS ONE, Public Library of Science, vol. 11(7), pages 1-17, July.
    2. Vesely, Stepan & Wengström, Erik, 2017. "Risk and Cooperation: Experimental Evidence from Stochastic Public Good Games," Working Papers 2017:3, Lund University, Department of Economics.
    3. Astrid Hopfensitz & César Mantilla & Josepa Miquel-Florensa, 2019. "Catch Uncertainty and Reward Schemes in a Commons Dilemma: An Experimental Study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(4), pages 1121-1153, April.
    4. Zhang, Huanren, 2019. "Common fate motivates cooperation: The influence of risks on contributions to public goods," Journal of Economic Psychology, Elsevier, vol. 70(C), pages 12-21.
    5. Marco A. Janssen & Therese Lindahl & James J. Murphy, 2015. "Advancing the Understanding of Behavior in Social-Ecological Systems: Results from Lab and Field Experiments," Working Papers 2015-05, University of Alaska Anchorage, Department of Economics.

    More about this item

    Keywords

    collective action; experimental economics; idiosyncratic risk; income smoothing; insurance; lab experiment; public goods; risk pooling; resource sharing; social dilemma; social-ecological systems; team production;

    JEL classification:

    • 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
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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