Working Paper: CEPR ID: DP12995
Authors: Conny Wunsch; Renate Strobl
Abstract: Negative income shocks can either be the consequence of risky choicesor random events. A growing literature analyzes the role of responsibilityfor neediness for informal financial support of individuals facingnegative income shocks based on randomized experiments. In this paper,we show that studying this question involves a number of challengesthat existing studies either have not been aware of, or have beenunable to address satisfactorily. We show that the average effect offree choice of risk on sharing, i.e.\ the comparison of mean sharingacross randomized treatments, is not informative about the behaviouraleffects and that it is not possible to ensure by the experimentaldesign that the average treatment effect equals the behavioural effect.Instead, isolating the behavioural effect requires conditioning onrisk exposure. We show that a design that measures subjects preferredlevel of risk in all treatments allows isolating this effect withoutadditional assumptions. Another advantage of our design is that itallows disentangling changes in giving behaviour due to attributionsof responsibility for neediness from other explanations. We implementour design in a lab experiment we conducted with slum dwellers inNairobi that measures subjects' transfers to a worse-off partner bothin a setting where participants could either deliberately choose orwere randomly assigned to a safe or a risky project. We find thatfree choice matters for giving and that the effects depend on donors'risk preferences but that attributions of responsibility play a negligiblerole in this context.
Keywords: Solidarity; Risk Taking; Experimental Design
JEL Codes: C91; D63; D81; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| attributions of responsibility for neediness (D91) | transfers to partners in the safe project (H87) |
| free choice of risk exposure (G11) | giving behavior (D64) |
| self-selection into risky projects (G11) | giving behavior (D64) |
| random assignment to risky projects (C78) | giving behavior (D64) |
| utility loss (L97) | giving behavior (D64) |
| mechanical effects (L64) | average transfers (F16) |
| payoff differences (G40) | average transfers (F16) |