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Title:Risk sharing relations and enforcement mechanisms
Authors:Barr, Abigail
Dekker, MarleenISNI
Fafchamps, MarcelISNI
Series:ASC working paper
City of publisher:Leiden
Publisher:African Studies Centre
Geographic term:Zimbabwe
economic behaviour
rural households
External link:https://hdl.handle.net/1887/12963
Abstract:It is common for village households in Zimbabwe to pool risk, for instance through mutual insurance arrangements or through group loans with joint liability. The mechanisms by which risk-pooling arrangements are enforced vary with the institutional and legal environment. This paper investigates whether the available enforcement mechanisms affect the formation of risk-sharing relations by applying dyadic regression analysis to data from a controlled behavioural field experiment carried out in 23 Zimbabwean villages in 2001. The authors considered three types of contract enforcement mechanism - perfect enforcement by an outside party, enforcement through intrinsic incentives such as mutual trust, and enforcement through endogenous, extrinsic incentives relating to the fear of partial or full exclusion from future interactions. They found that dyads which are similar in age and gender, genetically related, or which belong to the same organizations with an economic purpose are more likely to share risk. However, the latter are associated with less risk sharing when endogenous extrinsic incentives can be applied, while co-membership in religious congregations and being related by marriage support enforcement through such incentives. While the authors found no evidence of assortative group formation based on risk preferences, they did find evidence of convergence in risk-taking behaviour within groups ex post. [ASC Leiden abstract]