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สถาบันวิจัยเศรษฐกิจป๋วย อึ๊งภากรณ์
Puey Ungphakorn
Institute for
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Call for Papers: PIER Research Workshop 2025
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Discussion Paperdp
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Year
2025
2024
2023
2022
...
23 October 2022
20221666483200000
No. 191

Income Interdependence and Informal Risk Sharing Under the Shadow of the Future

Abstract

We propose a framework to analyze the effects of income interdependence between two players on risk sharing without commitment. In theory, the likelihood that an informal risksharing agreement is self-enforcing decreases with income correlation. We tested this prediction in the laboratory with negative, zero, and positive correlation coefficients and observed the largest average transfer in the positive-correlation treatment. This surprising result suggests that experiencing the same state of income could create a social bond and induce altruism between the two players. Therefore, informal risk sharing can be successful in a group with social identity despite high income correlation.

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JEL: D81C91C73O17
Tags: risk sharingincome correlationinfinite horizon gamesincome smoothingaltruismeconomic experiments
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Paan Jindapon
Paan Jindapon
University of Alabama
Pacharasut Sujarittanonta
Pacharasut Sujarittanonta
Cramton Associates
Ajalavat Viriyavipart
Ajalavat Viriyavipart
Chulalongkorn University

Puey Ungphakorn Institute for Economic Research

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Email: pier@bot.or.th

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