Using a lab‐in‐the‐field experiment in Uganda the authors study how risk sharing influences investment behaviour. Depending on the treatment, an investor may decide to share profits with a paired person, and/or the paired person may compensate the investor for investment losses. Following sharing norms in African societies, predicted investment is higher if loss sharing is possible, and/or profit sharing is not possible. Contrary to these predictions, they find that investment is higher when losses may not be shared or when profits may be shared with friends. A combination of directed altruism and expected reciprocity appears most plausible to explain these results.
This is an output from ‘A Behavioural Economic Analysis of Agricultural Investment Decisions in Uganda’ project.
D’Exelle, B. and Verschoor, A. (2015), Investment Behaviour, Risk Sharing and Social Distance. Economic Journal, 125: 777-802. doi:10.1111/ecoj.12264
Investment Behaviour, Risk Sharing and Social Distance