The crowding-out effect of formal insurance on informal risk sharing: An experimental study
This paper investigates the crowding-out effect of formal insurance on informal risk-sharing arrangements via theory and laboratory experiment. Our model and simulation predict that the crowding out of private transfers is often more than one-for-one and will reduce the total risk coverage. Furtherm...
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Published in | Games and economic behavior Vol. 86; pp. 184 - 211 |
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Main Authors | , , |
Format | Journal Article |
Language | English |
Published |
Duluth
Elsevier Inc
01.07.2014
Academic Press |
Subjects | |
Online Access | Get full text |
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Summary: | This paper investigates the crowding-out effect of formal insurance on informal risk-sharing arrangements via theory and laboratory experiment. Our model and simulation predict that the crowding out of private transfers is often more than one-for-one and will reduce the total risk coverage. Furthermore, the existence of a moderate degree of altruism exaggerates the crowding-out effect, especially when there is an ex-ante income inequality. These predictions are mostly supported by the laboratory experiment, except that the crowding-out effect is not more than one-for-one, and hence the total risk coverage is not significantly reduced by formal insurance.
•We model the crowding-out effect of formal insurance on informal risk-sharing transfers.•Our theory analyzes the role of altruism on the crowding-out effect.•Experiment suggests that the crowding-out effect exists but total risk coverage is not reduced.•Crowding-out effect is larger when there is fixed income inequality.•Altruism contributes to the crowding-out effect. |
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Bibliography: | ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23 |
ISSN: | 0899-8256 1090-2473 |
DOI: | 10.1016/j.geb.2014.03.004 |