The crowding-out effect of formal insurance on informal risk sharing: An experimental study

Wanchuan Lin, Yiming Liu and Juanjuan Meng ()

Games and Economic Behavior, 2014, vol. 86, issue C, 184-211

Abstract: This paper investigates the crowding-out effect of formal insurance on informal risk-sharing arrangements via theory and laboratory experiment. Our model and simulation predict that the crowding out of private transfers is often more than one-for-one and will reduce the total risk coverage. Furthermore, the existence of a moderate degree of altruism exaggerates the crowding-out effect, especially when there is an ex-ante income inequality. These predictions are mostly supported by the laboratory experiment, except that the crowding-out effect is not more than one-for-one, and hence the total risk coverage is not significantly reduced by formal insurance.

Keywords: Informal risk sharing; Insurance; Crowding-out effect; Altruism (search for similar items in EconPapers)
JEL-codes: C91 D81 O17 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:86:y:2014:i:c:p:184-211

DOI: 10.1016/j.geb.2014.03.004

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