Informal Risk Sharing in an Infinite‐Horizon Experiment

Gary Charness and Garance Genicot

Economic Journal, 2009, vol. 119, issue 537, 796-825

Abstract: Our laboratory study of risk sharing without commitment captures the main features of a simple model of voluntary insurance. Participants are paired in matches with stochastic endings. Each period they receive fixed endowments and one of the pair (randomly‐drawn) also receives an additional amount; they can then make voluntary transfers to each other. While smoothing consumption is attractive, only self‐enforcing risk sharing is possible. We find evidence supporting the theory: transfers provide insurance to individuals, a higher match continuation probability raises transfers and more risk‐averse individuals make larger transfers. More surprisingly, transfers decrease with ex ante inequality, potentially reflecting considerations of identity.

Date: 2009
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https://doi.org/10.1111/j.1468-0297.2009.02248.x

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Journal Article: Informal Risk Sharing in an Infinite-Horizon Experiment (2009)
Working Paper: Informal Risk Sharing in an Infinite-horizon Experiment (2008)
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