Incentive of risk sharing and trust formation: Experimental and survey evidence from Bangladesh

MPRA Paper from University Library of Munich, Germany

Abstract: Using data from a unique household survey and an artefactual field experiment conducted in rural Bangladesh, this study evaluates the impact on trust in community members of an incentive to maintain a risk-sharing arrangement between villagers. Risk sharing is a major opportunity for cooperation in rural economies, and the experience of cooperation could facilitate trust. In order to test this hypothesis, this study characterizes the incentive for risk sharing by the patterns of exogenous income shocks in the real world and risk preference, and trust in community members is elicited experimentally. The empirical results from dyadic regression demonstrate that villagers connected by a stronger incentive form higher level of trust. It is also found that villagers are more likely to share risks in villages that have stronger incentives. These findings suggest that the introduction of formal insurance, which reduces the incentive of risk sharing, could break down trust.

Keywords: Trust formation; risk sharing; experiment; Bangladesh (search for similar items in EconPapers)
JEL-codes: C91 D12 (search for similar items in EconPapers)
Date: 2016-06-13
New Economics Papers: this item is included in nep-dev, nep-exp, nep-hrm and nep-soc
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https://mpra.ub.uni-muenchen.de/71950/1/MPRA_paper_71950.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/74937/9/MPRA_paper_74937.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/83772/1/MPRA_paper_83772.pdf revised version (application/pdf)

Related works:
Journal Article: Incentive for risk sharing and trust formation: experimental and survey evidence from Bangladesh (2018)
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