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Insurance and Solidarity: Evidence from a Lab-in-the-Field Experiment in Cambodia

Author

Listed:
  • Lenel, Friederike

    (Leibniz University of Hannover)

  • Steiner, Susan

    (Leibniz University of Hannover)

Abstract
This paper investigates the crowding out of informal support among peers by the introduction of formal insurance. We show that the availability of insurance changes people's intrinsic motivation to support others. We report results from a lab-in-the-field experiment conducted in Cambodia. Half of the subjects face the risk to lose a large proportion of their endowment. It is varied whether they can purchase an insurance before the loss is determined. The other half of the subjects can transfer part of their endowment to those who lose. We find that significantly lower transfers are provided to subjects who had the option to purchase insurance but did not use this option than to subjects who did not have the insurance option available. We show that the reduction in transfers is not affected by whether subjects were informed about the possibility of informal support when making their insurance decision. Our findings indicate that the extent of crowding out may be larger than previously thought, because insurance does not only change economic incentives but also affects intrinsic motivations.

Suggested Citation

  • Lenel, Friederike & Steiner, Susan, 2017. "Insurance and Solidarity: Evidence from a Lab-in-the-Field Experiment in Cambodia," IZA Discussion Papers 10986, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp10986
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    References listed on IDEAS

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    Cited by:

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    3. Hample, Kelsey C, 2021. "Formal insurance for the informally insured: Experimental evidence from Kenya," World Development Perspectives, Elsevier, vol. 22(C).
    4. Strobl, Renate & Wunsch, Conny, 2017. "Does Voluntary Risk Taking Affect Solidarity? Experimental Evidence from Kenya," IZA Discussion Papers 10906, Institute of Labor Economics (IZA).
    5. Grimm, Michael & Hartwig, Renate & Reitmann, Ann-Kristin & Bocoum, Fadima Yaya, 2020. "Can informal redistribution withstand formal safety nets? Insights from urban-rural transfers in Burkina Faso," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-81-20, University of Passau, Faculty of Business and Economics.
    6. Grimm, Michael & Hartwig, Renate & Reitmann, Ann-Kristin & Bocoum, Fadima Yaya, 2021. "Inter-household transfers: An empirical investigation of the income-transfer relationship with novel data from Burkina Faso," World Development, Elsevier, vol. 144(C).
    7. Dan Anderberg & Karlijn Marsink, 2019. "The introduction of formal insurance and its effect on redistribution," CESifo Working Paper Series 7596, CESifo.
    8. Strupat, Christoph & Klohn, Florian, 2018. "Crowding out of solidarity? Public health insurance versus informal transfer networks in Ghana," World Development, Elsevier, vol. 104(C), pages 212-221.

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    More about this item

    Keywords

    insurance; informal support; crowding-out; social preferences; Cambodia;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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