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Social dilemmas with public and private insurance against losses

Esther Blanco, E. Dutcher and Tobias Haller

Journal of Economic Behavior & Organization, 2020, vol. 180, issue C, 924-937

Abstract: This study presents empirical findings on the use of public and private insurance investments in the presence of a potential loss at the group-level. We introduce a novel experimental game where subjects face a group loss and have the choice to reduce the probability of the group loss (public insurance), reduce the magnitude of the individual loss (private insurance), or to increase own payoffs (individual earnings, non-insurance fund). We explore subjects’ responses to three treatment conditions; high loss, low loss and asymmetric loss. Results show that investments in group insurance are lower for those who face lower levels of a potential loss and instead invest more in the individual earnings fund. Investments in the private insurance are not significantly different for agents facing different potential losses. These results stand both for symmetric and asymmetric groups, as subjects respond in a way consistent with a focus on their own marginal incentives. When examining dynamic behavior, we find that subjects use the public and private insurance as substitutes; that is, they invest more in private insurance when they expect lower aggregate investments in the public insurance. To better understand the robustness of results, in some treatments the loss was probabilistic (either occurred or not based on a probabilistic outcome), while in others it was deterministic (losses were presented in expected terms). These results are robust to probabilistic and deterministic presentations of losses.

Keywords: Behavioral economics; Social dilemma; Economic experiment; Group losses; Public insurance; Private insurance (search for similar items in EconPapers)
JEL-codes: C92 D9 H4 Q54 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jebo.2019.02.008

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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:924-937