Risk Sharing Relations and Enforcement Mechanisms

Abigail Barr, Marleen Dekker and Marcel Fafchamps

No 2008-14, CSAE Working Paper Series from Centre for the Study of African Economies, University of Oxford

Abstract: We investigate whether the set of available enforcement mechanisms affects the formation of risk sharing relations by applying dyadic regression analysis to data from a specifically designed behavioural experiment, two surveys and a genealogical mapping exercise. During the experiment participants are invited to form risk sharing relations under three institutional environments, each associated with different enforcement mechanisms: external, intrinsic and endogenous extrinsic, i.e. the threat of (partial) social exclusion. Dyads who are similar in age and gender, genetically related, or who belong to the same organisations with an economic purpose are more likely to share risk. However, the latter are associated with less risk sharing when endogenous extrinsic incentives can be applied, while co-membership in religious congregations and being related to marriage support enforcement through such incentives. We find no evidence of assertive grouping on risk preferences but, ex post, co-group members’ risk-taking behaviour converges.

Date: 2008
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