Sharing as Risk Pooling in a Social Dilemma Experiment

Todd Cherry, Lance Howe and James Murphy

No 2012-01, Working Papers from University of Alaska Anchorage, Department of Economics

Abstract: In rural economies with missing or incomplete markets, idiosyncratic risk is frequently pooled through informal networks. Idiosyncratic shocks, however, are not limited to private goods but can also restrict an individual from partaking in or benefitting from a collective activity. In these situations, a group must decide whether to provide insurance to the affected member. In this paper, we describe results of a laboratory experiment designed to test whether a simple sharing institution can sustain risk pooling in a social dilemma with idiosyncratic risk. We test whether risk can be pooled without a commitment device and, separately, whether effective risk pooling induces greater cooperation in the social dilemma. We find that even in the absence of a commitment device or reputational considerations, subjects voluntarily pool risk thereby reducing variance in individual earnings. In spite of effective risk pooling, however, cooperation in the social dilemma is unaffected.

Keywords: lab experiment; public goods; risk; shock; sharing; experimental economics; environmental economics (search for similar items in EconPapers)
JEL-codes: C90 C92 D70 D81 H41 O13 Q20 (search for similar items in EconPapers)
Date: 2012-04
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp and nep-hpe
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Published in Ecology and Society. 20(1):68

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Related works:
Working Paper: Sharing as Risk Pooling in a Social Dilemma Experiment (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ala:wpaper:2012-01

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