Voluntary contributions in a system with uncertain returns: a case of systemic risk

Annarita Colasante (), Aurora García-Gallego, Nikolaos Georgantzís () and Andrea Morone

Journal of Economic Interaction and Coordination, 2020, vol. 15, issue 1, No 5, 132 pages

Abstract: Abstract This paper investigates systemic risk that emerges from the interplay between uncertain returns to individual actions, uncertainty on others’ behavior and all this filtered through individual attitudes toward risk. We design a finitely repeated linear public good experiment based on a voluntary contribution mechanism and analyze the effect of risky and uncertain returns on subjects’ contributions. Results from a baseline treatment without uncertainty are compared with two risky treatments characterized by different values for the marginal per capita return. In the treatments with risk, subjects are randomly assigned to one out of three feasible marginal per capita returns, independently of what their individual contribution was. Results show that a sufficient level of uncertainty leads to significantly lower individual contributions. Furthermore, in a system with lower contributions due to uncertainty, subjects’ risk aversion enhances the systemic risk, leading the system to collapse.

Keywords: Uncertainty; Systemic risk; Exogenous risk; Public good game; Experiment (search for similar items in EconPapers)
JEL-codes: D84 E37 G12 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11403-019-00276-z

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