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Do informal transfers induce lower efforts? Evidence from lab-in-the-field experiments in rural Mexico

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  • Alger, Ingela
  • Juarez, Laura
  • Juarez-Torres, Miriam
  • Miquel-Florensa, Josepa

Abstract

How does informal risk sharing affect incentives to avoid risk? While moral hazard is expected under formal insurance, theory suggests that the incentive effects of informal risk sharing are ambiguous: internalization of the external effects of transfers on others may reduce or enhance incentives to avoid risk. To study this issue, which is particularly relevant for developing economies, we designed a novel real-effort lab experiment and conducted it in 16 small villages in rural Mexico. We find that subjects internalize the effects of transfers enough for the presence of transfers to significantly increase effort compared to autarky situations.

Suggested Citation

  • Alger, Ingela & Juarez, Laura & Juarez-Torres, Miriam & Miquel-Florensa, Josepa, 2016. "Do informal transfers induce lower efforts? Evidence from lab-in-the-field experiments in rural Mexico," IAST Working Papers 16-34, Institute for Advanced Study in Toulouse (IAST), revised Sep 2018.
  • Handle: RePEc:tse:iastwp:30163
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    Cited by:

    1. World Bank Group, 2015. "Tanzania Mainland Poverty Assessment," World Bank Publications - Reports 22021, The World Bank Group.
    2. Vollan, Björn & Hadnes, Myriam & Nilgen, Marco & Kosfeld, Michael, 2021. "The Fetters of the Sib: An Experimental Study in Burkina Faso," IZA Discussion Papers 14147, Institute of Labor Economics (IZA).
    3. Alger, Ingela & Juarez, Laura & Juarez-Torres, Miriam & Miquel-Florensa, Josepa, 2020. "Do women contribute more effort than men to a real public good?," IAST Working Papers 20-103, Institute for Advanced Study in Toulouse (IAST).

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    More about this item

    Keywords

    informal insurance; effort; moral hazard; free-riding effect; empathy effect;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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