Working Paper: CEPR ID: DP12996
Authors: Renate Strobl; Conny Wunsch
Abstract: In this study we experimentally investigate whether solidarity, whichis a crucial base for informal insurance arrangements in developingcountries, is sensitive to the extent to which individuals can influencetheir risk exposure. With slum dwellers of Nairobi our design measuressubjects' willingness to share income with 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 thatonly a subgroup of subjects reduces willingness to give when riskexposure is a choice. Responses are limited to donors in the riskyproject, whereas donors in the safe project do not adjust theirwillingness to give. This difference in behaviour can be explainedby differential giving in the absence of choice. Lucky winners with the riskyproject show a particularly high degree of solidarity with unluckylosers compared to donors and partners assigned to the safe projectwhen they face risk for exogenous reasons. The possibility of freeproject choice removes these differences in generosity and we show that this is driven by attributions of responsibility for neediness. Our results suggest that crowding out of informalsupport might be less severe than suggested by the studies from Westerncountries and the evidence on formal insurance from developing countries.
Keywords: solidarity; risk taking; kenya
JEL Codes: D81; C91; O12; D63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Individuals' willingness to give is influenced by their risk exposure (D64) | Willingness to give (D64) |
| Risk exposure is a choice (G11) | Willingness to give (D64) |
| Risk exposure in risky project (D81) | Willingness to give (D64) |
| Lucky winners in the risky project show a high degree of solidarity with unlucky losers (D80) | Solidarity behavior (D70) |
| Attributions of responsibility for neediness drive the reduction in willingness to give (D64) | Willingness to give (D64) |
| When individuals face risk for exogenous reasons (D81) | Willingness to share unexpectedly high income (D16) |
| Crowding out of informal support may be less severe than previously suggested by studies in western contexts (F35) | Solidarity norms (F55) |