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An Experimental Analysis ofGroup Size and Risk Sharing

Author

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  • A. Chaudhuri
  • L. Gangadharan
  • Pushkar Maitra

Abstract

We study the relationship between group size and the extent of risk sharing in an insurance game played over a number of periods with random idiosyncratic and aggregate shocks to income in each period. Risk sharing is attained via agents that receive a high endowment in one period making unilateral transfers to agents that receive a low endowment in that period. The complete risk sharing allocation is for all agents to place their endowments in a common pool, which is then shared equally among members of the group in every period. Theoretically, the larger the group size, the smaller the per capita dispersion in consumption and greater is the potential value of insurance. Field evidence however suggests that smaller groups do better than larger groups as far as risk sharing is concerned. Results from our experiments show that the extent of mutual insurance is significantly higher in smaller groups, though contributions to the pool are never close to what complete risk sharing requires.

Suggested Citation

  • A. Chaudhuri & L. Gangadharan & Pushkar Maitra, 2005. "An Experimental Analysis ofGroup Size and Risk Sharing," Department of Economics - Working Papers Series 955, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:955
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-05/955.pdf
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    References listed on IDEAS

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    Cited by:

    1. de Oliveira, Angela C.M. & Eckel, Catherine C. & Croson, Rachel T.A., 2014. "Solidarity among the poor," Economics Letters, Elsevier, vol. 123(2), pages 144-148.
    2. Franziska Tausch & Jan Potters & Arno Riedl, 2014. "An experimental investigation of risk sharing and adverse selection," Journal of Risk and Uncertainty, Springer, vol. 48(2), pages 167-186, April.

    More about this item

    Keywords

    Reciprocity; Risk Sharing; Group Size; Experiments;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • 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

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