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Imperfect monitoring and informal insurance: The role of social ties

Prachi Jain

Journal of Economic Behavior & Organization, 2020, vol. 180, issue C, 241-256

Abstract: This paper examines whether social ties impact informal insurance in the presence of asymmetric information. Using games with residents of informal settlements in Kenya, I vary the observability of task completion and partners. While individuals are less likely to make transfers as a result of imperfect monitoring, socially close individuals are 30% more likely to make transfers. As a result, socially close individuals are 47% more likely to make transfers than socially distant individuals when task completion cannot be observed. I then explore the mechanisms by which social connections influence risk sharing. I find evidence that social connections increase participants’ motivation to work only when task completion cannot be observed, potentially due to social collateral and/or intrinsic motivation.

Keywords: Asymmetric information; Social capital; Informal insurance; Risk sharing; Moral hazard; Laboratory experiments (search for similar items in EconPapers)
JEL-codes: C92 D82 D85 O12 O17 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jebo.2020.09.028

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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Handle: RePEc:eee:jeborg:v:180:y:2020:i:c:p:241-256