Investment Behaviour, Risk Sharing and Social Distance

Abstract

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