Alger, Ingela, Juarez, Laura, Juarez-Torres, Miriam and Miquel-Florensa, Josepa (2016) Do informal transfers induce lower efforts? Evidence from lab-in-the-field experiments in rural Mexico. TSE Working Paper, n. 16-623, Toulouse

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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.

Item Type: Monograph (Working Paper)
Language: English
Date: February 2016
Place of Publication: Toulouse
Uncontrolled Keywords: Informal insurance, effort, moral hazard, free-riding effect, empathy effect
JEL Classification: C91 - Laboratory, Individual Behavior
D64 - Altruism
O12 - Microeconomic Analyses of Economic Development
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 15 Apr 2016 14:53
Last Modified: 02 Apr 2021 15:51
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