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Insurance and Solidarity: Evidence from a Lab-in-the-Field Experiment in Cambodia

Friederike Lenel and Susan Steiner ()
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Friederike Lenel: Leibniz University of Hannover

No 10986, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: This paper investigates the crowding out of informal support among peers by the introduction of formal insurance. We show that the availability of insurance changes people's intrinsic motivation to support others. We report results from a lab-in-the-field experiment conducted in Cambodia. Half of the subjects face the risk to lose a large proportion of their endowment. It is varied whether they can purchase an insurance before the loss is determined. The other half of the subjects can transfer part of their endowment to those who lose. We find that significantly lower transfers are provided to subjects who had the option to purchase insurance but did not use this option than to subjects who did not have the insurance option available. We show that the reduction in transfers is not affected by whether subjects were informed about the possibility of informal support when making their insurance decision. Our findings indicate that the extent of crowding out may be larger than previously thought, because insurance does not only change economic incentives but also affects intrinsic motivations.

Keywords: insurance; informal support; crowding-out; social preferences; Cambodia (search for similar items in EconPapers)
JEL-codes: D03 C91 O12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-ias and nep-sea
Date: 2017-09
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