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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," TSE Working Papers 16-623, Toulouse School of Economics (TSE), revised Sep 2018.
    • Handle: RePEc:tse:wpaper:30190
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    Cited by:

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    3. Ingela Alger & Laura Juarez & Miriam Juarez-Torres & Josepa Miquel-Florensa, 2023. "Do Women Contribute More Effort than Men to a Real Public Good?," The World Bank Economic Review, World Bank, vol. 37(2), pages 205-220.
    4. Pakhtigian, Emily L. & Pattanayak, Subhrendu K., 2024. "Social setting, gender, and preferences for improved sanitation: Evidence from experimental games in rural India," World Development, Elsevier, vol. 177(C).

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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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