Reduction of Environmental Risk as a Public Good

Abstract

When group members share their resources equally, regardless of their contribution to the collective group outcomes, equity norms may be violated. Some individuals may use the opportunity to take a free ride and as a result others will be put in the position of suckers. The equal division rule, however, has a clear advantage that has received little theoretical and empirical attention. Sharing with others reduces the risk associated with individual outcome in an uncertain environment and thus has the effect of insurance. We report an experiment in which we examined subjects’ willingness to share with others as a function of environmental uncertainty and personal risk preferences. Specifically, each subject had to choose between an individual lottery and an equal share of a combined group lottery. We found that, when uncertain about their own outcome, risk-averse individuals prefer the less risky group option, whereas risk-seeking individuals prefer to take their own risk. Assuming that in real-life situations people are typically risk-averse, we conclude that the desire to reduce uncertainty concerning one’s outcomes indeed motivates people to pool their risks with other group members.