Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5071700 | Games and Economic Behavior | 2014 | 28 Pages |
Abstract
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.
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Authors
Wanchuan Lin, Yiming Liu, Juanjuan Meng,