Altruism, Insurance, and Costly Solidarity Commitments
67 Pages Posted: 4 Dec 2019
Date Written: November 2019
Inter-household transfers play a central role in village economies. Whether understood as informal insurance, credit, or social taxation, the dominant conceptual models used to explain transfers rest on a foundation of self-interested dynamic behavior. Using experimental data from households in rural Ghana, where we randomized private and publicly observable cash payouts repeated every other month for a year, we reject two core predictions of the dominant models. We then add impure altruism and social taxation to a model of limited commitment informal insurance networks. The data support this new model's predictions, including that unobservable income shocks may facilitate altruistic giving that better targets less-well-off individuals within one's network, and that too large a network can overwhelm even an altruistic agent, inducing her to cease giving.
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