What stops villagers from sharing risk efficiently—limited commitment, moral hazard, or hidden income? We design lab experiments in rural Paraguay whose predictions differ across models, and find that no single friction explains all villages.

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Abstract

We conduct dictator-type games in rural Paraguay with different treatments that manipulate players’ information and choice sets. From individuals’ choices in the games, we draw inferences regarding impediments to efficient risk sharing in the larger village supergame. Outcomes from the experimental games suggest that players in most villages are reacting to the kinds of incentives that would be predicted from a private information model with hidden investments, while in others players act in a manner consistent with the predictions of a model with limited commitment. No single one of our models can explain outcomes in all villages, but outcomes in nearly every village are consistent with one or more of our models.

BibTeX

@Article{	  ligon-schechter20,
  author	= {Ethan Ligon and Laura Schechter},
  title		= {Structural Experimentation to Distinguish between Models
                of Risk Sharing with Frictions in Rural {Paraguay}},
  journal	= {Economic Development and Cultural Change},
  year		= 2020,
  volume	= 69,
  number	= 1,
  pages		= {1--50},
  doi		= {10.1086/702793}
}