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Do informal transfers induce lower efforts? Evidence from lab-in-the-field experiments in rural Mexico

Ingela Alger (), Laura Juarez (), Miriam Juarez and Josepa Miquel-Florensa ()

No 16-34, IAST Working Papers from Institute for Advanced Study in Toulouse (IAST)

Abstract: How does informal risk sharing affect incentives to avoid risk? While moral hazard is expected under formal insurance, theory suggests that the incentive effects of informal risk sharing are ambiguous: internalization of the external effects of transfers on others may reduce or enhance incentives to avoid risk. To study this issue, which is particularly relevant for developing economies, we designed a novel real-effort lab experiment and conducted it in 16 small villages in rural Mexico. We find that subjects internalize the effects of transfers enough for the presence of transfers to significantly increase effort compared to autarky situations.

Keywords: informal insurance; effort; moral hazard; free-riding effect; empathy effect (search for similar items in EconPapers)
JEL-codes: C91 D64 O12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-exp, nep-hrm and nep-ias
Date: 2016-02, Revised 2018-09
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Working Paper: Do informal transfers induce lower efforts? Evidence from lab-in-the-field experiments in rural Mexico (2018) Downloads
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