Seminar in Economic and Social Research Institute (No.44):
Gift-giving and Risk Sharing: A Theory of Signaling and Evidence from Rural China

                      
Lecture | April 28, 2017/13:30-15:00 | 106B Meeting Hall，Zhonghui Building, JNU
Speaker：Dr. WANG RUI-xin
Sponsor: Economic and Social Research Institute of Jinan University

ABOUT WANG RUI-xin
Dr. WANG RUI-xin is the research assistant professor of Business School at Hong Kong Baptist University. He received his Bachelor degree in economics from Dalian University of Technology in 2008, Master degree from Hong Kong University of Science and Technology in2009 and PhD in Economic from Tilburg University in 2015. Dr. Wang had a short-term visit in IFPRI before he came to Hong Kong Baptist University. His research field mainly lies in development economics and public economics. His main research of interest focuses on informal institutional and policy factors which shape economic development. His paper on risk sharing and money race won the best paper award of the first session of China Labor Economist Forum Annual Conference (2016).

Abstract:
This paper studies how gift exchange may help to overcome limited commitment problem in risk sharing. When efficient contract enforcement is lacking, people rely on friends (or relatives) to share risk since emotional or moral cost of defaulting between friends can help to prevent moral hazard. The problem is how to distinguish between friends and non-friends? Gift expense serves as a signal of friendship since giving a gift is less costly for a friend than a non-friend due to altruism. The model re-evaluates the role of gift exchange in developing economies, and helps to rationalize the large amount of gift exchange in China (10% of living expenditure). As a signal, gift exchange improves the efficiency in risk sharing and facilitates favor exchange, but I also demonstrate that the welfare gains due to this improvement may be offset by increased inequality. By using a unique data set containing detailed records about gift exchange in rural China, the empirical study suggests gift expenses, as a signal, significantly increase the probability of risk sharing. I also show further empirical evidence to the theory by testing more model predictions.