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Investment Behaviour, Risk Sharing and Social Distance

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Abstract

Using a lab-in-the-field experiment in Uganda we 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, we 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.

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Original languageEnglish
Pages (from-to)777–802
Number of pages26
JournalThe Economic Journal
Volume125
Issue number584
DOIs
Publication statusPublished - May 2015
Peer-reviewedYes

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