Heterogeneity of Preferences, Limited Commitment and Coalitions: Empirical Evidence on the Limits to Risk Sharing in Rural Paki

Pierre Dubois

No 6004, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper, we study the determinants of the value of informal risk sharing groups. In particular, we look at the effects of heterogeneity of preferences and of limited commitment constraints that restrict feasible allocations differently if individuals can deviate form risk sharing agreements in coalitions or not. We test empirically several predictable implications in rural Pakistan taking into account the heterogeneity of households' preferences. Our results show that exogenous size of risk sharing groups can be rejected or that only imperfect risk sharing is obtained within the village because of limited commitment and because of the risk of coalition formation that needs to be deterred.

Keywords: Coalitions; Insurance; Limited commitment; Pakistan; Risk; Risk aversion (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-agr, nep-dev and nep-ias
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Citations: View citations in EconPapers (12)

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