Risk Pooling, Commitment, and Information: An experimental test of two fundamental assumptions
This paper presents rigorous and direct tests of two assumptions relating to limited commitment and asymmetric information that underpin current models of risk pooling. A specially designed economic experiment involving 678 subjects across 23 Zimbabwean villages is used to solve the problems of observability and quantification that have frustrated previous attempts to conduct such tests. I find that more extrinsic commitment is associated with more risk pooling, but that more information is associated with less risk pooling. The first of these results accords with our expectations and assumptions. The second does not. I offer two explanations as to the origin of the second result and discuss their implications for how we view the assumptions made elsewhere in the literature. I also conduct a test of the relevance or external validity of the experimental results to our understanding of real risk pooling behaviour. In four out of the five villages for which the test could be onducted the networks of risk pooling contracts constructed during the experiment and the networks existing in real life were significantly correlated.
|Date of creation:||01 Jun 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Holzmann, Robert & Packard, Truman & Cuesta, Jose, 2000. "Extending coverage in multi-pillar pension systems : constraints and hypotheses, preliminary evidence and future research agenda," Social Protection Discussion Papers 21303, The World Bank.
- Ligon, Ethan & Thomas, Jonathan P & Worrall, Tim, 2002.
"Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies,"
Review of Economic Studies,
Wiley Blackwell, vol. 69(1), pages 209-44, January.
- Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 209-244.
- Hans Binswanger, 1980. "Attitudes toward risk: Experimental measurement in rural india," Artefactual Field Experiments 00009, The Field Experiments Website.
- Townsend, Robert M, 1994.
"Risk and Insurance in Village India,"
Econometric Society, vol. 62(3), pages 539-91, May.
- Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
- Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
- Marcel Fafchamps & Susan Lund, .
"Risk Sharing Networks in Rural Philippines,"
97014, Stanford University, Department of Economics.
- Cardenas, Juan Camilo & Stranlund, John & Willis, Cleve, 2000.
"Local Environmental Control and Institutional Crowding-Out,"
Elsevier, vol. 28(10), pages 1719-1733, October.
- Cleve Willis & John Stranlund & Juan-Camilo Cardenas, 2000. "Local environmental control and institutional crowding-out," Artefactual Field Experiments 00028, The Field Experiments Website.
- Richard Posner & Eric Rasmusen, 1999.
"Creating and Enforcing Norms, With Special Reference to Sanctions,"
Law and Economics
- Posner, R.A. & Rasmusen, E., 1998. "Creating and Enforcing Norms, with Special Reference to Sanctions," Papers 98-005, Indiana - Center for Econometric Model Research.
- Posner, Richard A. & Rasmusen, Eric B., 1999. "Creating and enforcing norms, with special reference to sanctions1," International Review of Law and Economics, Elsevier, vol. 19(3), pages 369-382, September.
- Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 495-526, July.
- Ravallion, Martin & Dearden, Lorraine, 1988. "Social Security in a "Moral Economy": An Empirical Analysis for Java," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 36-44, February.
- Rosenzweig, Mark R & Stark, Oded, 1989.
"Consumption Smoothing, Migration, and Marriage: Evidence from Rural India,"
Journal of Political Economy,
University of Chicago Press, vol. 97(4), pages 905-26, August.
- Rosenzweig, Mark R. & Stark, Oded, 1987. "Consumption Smoothing, Migration and Marriage: Evidence from Rural India," Bulletins 7515, University of Minnesota, Economic Development Center.
- Iris Bohnet & Bruno S. Frey & Steffen Huck, . "More Order with Less Law: On Contract Enforcement, Trust, and Crowding," IEW - Working Papers 052, Institute for Empirical Research in Economics - University of Zurich.
- Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
- Ligon, Ethan, 1998. "Risk Sharing and Information in Village Economics," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 847-64, October.
- Grimard, Franque, 1997. "Household consumption smoothing through ethnic ties: evidence from Cote d'Ivoire," Journal of Development Economics, Elsevier, vol. 53(2), pages 391-422, August.
- Samuel Bowles & Herbert Gintis, 1998. "Mutual Monitoring in Teams: The Effects of Residual Claimancy and Reciprocity," Research in Economics 98-08-074e, Santa Fe Institute.
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:wps/2003-05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise)
If references are entirely missing, you can add them using this form.