Structural Experimentation to Distinguish between Models of Risk Sharing with Frictions in Rural Paraguay

Abstract

We conduct dictator-type games in rural Paraguay; different treatments involve manipulating players’ information and choice sets. From individuals’ choices in the games, we draw inferences regarding impediments to efficient risk sharing in the larger village supergame. Outcomes from the experimental games suggest that players in most villages are reacting to the kinds of incentives that we would predict from a private information model with hidden investments, while in others players act in a manner consistent with the predictions of a model with limited commitment. No single one of our models can explain outcomes in all villages, but outcomes in nearly every village are consistent with one or more of our models.