Sharing as Risk Pooling in a Social Dilemma Experiment

Todd Cherry, Lance Howe and James Murphy

Working Papers from Chapman University, Economic Science Institute

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 benefiting 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: collective action; experimental economics; idiosyncratic risk; income smoothing; insurance; lab experiment; public goods; risk pooling; resource sharing; social dilemma; social-ecological systems; team production (search for similar items in EconPapers)
JEL-codes: C92 D81 O13 Q20 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-ias and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Working Paper: Sharing as Risk Pooling in a Social Dilemma Experiment (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:15-03

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