Are less informed people more honest? A theoretical Investigation with Informal Mutual Insurance

Das, Shampita and Bhattacharya, Sukanta (2021): Are less informed people more honest? A theoretical Investigation with Informal Mutual Insurance.

Abstract

The paper analyzes the effect of improvement in the quality of information on the arrangement of informal mutual insurance. We show that the equilibrium amount of insurance mostly tends to decrease as the quality of the signal improves for any individual. We also show that the improvement in signal quality of an individual makes her better off at the cost of her partner. With community enforcement of insurance arrangements and random matching among community members, we show that less informed individuals are more likely to behave honestly than the more informed community members.

• Item Type: MPRA Paper
• Language: English
• Keywords: informal insurance; quality of information; social norms; community bonding; repeated interactions
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty

References

1. Assian American Community Survey, 2010

2. Besley Timothy, Nonmarket Institution for Credit and Risk Sharing In Low-Income Countries, The Journal of Economic Perspectives,Vol.9, No. 3 (Summer, 1995), 115-127

3. Bloch Francis, Genicot Garance and Ray Debraj. Informal Insurance in social networks.Journal of Economic Theory 143 pp 36{58, 2008

4. Coate Stephen and Ravallion Martin, Reciprocity without Commitment Characterization and performance of informal insurance arrangements, Journal of Development Economics 40 (1993) 1-24

5. Ecklund Elaine Howard and Park Jerry z., Asian American Community Participation and Religion: Civic "Model Minorities?" Journal Of Asian American studies (2005), 8:1

6. Fafchamps Marcel and Gubert Flore, The formation of risk sharing networks, Journal of Development Economics 83 (2007) 326-350

7. Fafchampsa Marcel and Lundb Susan, Risk-sharing networks in rural Philippines, Journal of Development Economics 71 (2003) 261-287

8. Fehr Ernst and Fischbacher Urs . Social norms and human cooperation. Trends in Cognitive Sciences Vol.8 No.4, April 2004

9. Fundenberg Drew and Maskin Eric. The folk theorem in repeated games with discounting or with incomplete information.Econometrica.Vol. 54, No. 3,533-554, May 1986

10. Ghose Parikshit and Ray Debraj. Cooperation in community interaction without information flows. Review of Economic studies 63:491-519, 1996.

11. Kandori Michihiro. Social norms and community enforcement.Review of economic studies 59, 63-80, 1992

12. Putnam Robert, Bowling Alone, Journal of Democracy 6:1, Jan 1995, 65-78

13. Social Capital Community Benchmark Survey Executive Summary. The Saguaro seminar civic engagement in America. John E Kennedy School of Government, Harvard University,2008.