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Heterogeneity of Preferences, Limited Commitment and Coalitions: Empirical Evidence on the Limits to Risk Sharing in Rural Pakistan

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  • Dubois, Pierre

Abstract

In this paper, we study the determinants of the value of informal risk sharing groups. In particular, we look at the effects of heterogeneity of preferences and of limited commitment constraints that restrict feasible allocations differently if individuals can deviate form risk sharing agreements in coalitions or not. We test empirically several predictable implications in rural Pakistan taking into account the heterogeneity of households' preferences. Our results show that exogenous size of risk sharing groups can be rejected or that only imperfect risk sharing is obtained within the village because of limited commitment and because of the risk of coalition formation that needs to be deterred.

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  • Dubois, Pierre, 2006. "Heterogeneity of Preferences, Limited Commitment and Coalitions: Empirical Evidence on the Limits to Risk Sharing in Rural Pakistan," CEPR Discussion Papers 6004, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6004
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    Cited by:

    1. Jaramillo, Fernando & Kempf, Hubert & Moizeau, Fabien, 2015. "Heterogeneity and the formation of risk-sharing coalitions," Journal of Development Economics, Elsevier, vol. 114(C), pages 79-96.
    2. Tessa Bold, 2008. "Implications of Endogenous Group Formation for Efficient Risk-Sharing," Economics Series Working Papers 387, University of Oxford, Department of Economics.

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    Keywords

    coalitions; insurance; limited commitment; Pakistan; risk; risk aversion;

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