Formal Insurance, Risk Sharing, and the Dynamics of Other-Regarding Preferences

Content Provider	Scilit
Author	Freudenreich, Hanna Ibanez, Marcela Dietrich, Stephan Musshoff, Oliver
Copyright Year	2017
Description	Journal: SSRN Electronic Journal In the absence of formal financial markets, many poor households rely on risk sharing networks to protect themselves against adverse events. In this paper we present a model that explains the impact of formal insurance on informal risk sharing and, subsequently, the dynamics of other-regarding preferences. We use a field experiment to test the predictions of the model with rural households in Mexico. Consistent with the model predictions, we find that when shocks are collective, there is a crowding-out effect on transfers and a decrease in trust on insured participants. However, when shocks are idiosyncratic, we fail to confirm the predictions of the model. Transfers to non-insured members are significantly higher when insurance is available to some of the network members than in a control treatment when insurance is not available. This unexpected crowding-in effect on transfers leads to an increase in trust among non-insured participants. These findings suggest that there is a need to find optimal insurance designs that minimizes the crowding-out effect of formal insurance on informal risk sharing and other-regarding preferences.
Related Links	http://ageconsearch.umn.edu/record/266532/files/GlobalFood_DP115.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3100388
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.3100388
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2017-10-26
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Mathematical Social Sciences Risk Sharing Regarding Preferences
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health