Collaborative Research: Informal risk-sharing and private initiative to mitigate local environmental risks

For thousands of communities in the United States the environment, natural or contaminated, presents challenges to human health. These risks are often highly localized and therefore avoidable. Many Americans depend on well water that often is below the standards set by regulatory actions pursuant to the Safe Drinking Water Act. One approach to reduce contaminants is to rely on the government to mitigate these risks and reduce the welfare impact of adverse outcomes through the provision of local public goods, including safe drinking water and health services. Government provision of such public goods, however, is not always adequate. The assumptions underlying this project is that such limitations may be overcome by (a) exploiting private risk to achieve greater cooperation, building upon the 'veil of ignorance' concept of John Rawls to foster cooperation for public goods; (b) departing from the pitfalls of either extreme of public or private goods only by focusing on sharing of privately-owned resources; and (c) exploring how information and social-networks increase cooperation as well as encouraging private investments in mitigation technologies. To test these concepts, the researchers have chosen as context a major disaster of natural origin: toxic levels of arsenic in groundwater pumped by millions of private wells across Bangladesh. Information on individual risk, in this case well tests for arsenic, are provided in ways that encourage greater cooperation and investment through the sharing of safe wells and the installation of new safe wells. The findings have implications for environmental policy in the United States as high-resolution data on water, air, and soil quality become increasingly accessible to citizens.

More specifically, this research studies the role of risk-sharing and social networks in perception and mitigation of local environmental risks. The research team focuses on two aspects: increasing cooperation for risk mitigation and increasing private investment in risk mitigation technology. This project is based in a setting where these two factors become particularly important due to a lack of government-provided resources for reducing environmental risk. The research first tests whether informal insurance, where compliance may be primarily enforced by existing social structure and reciprocity norms, can effectively counter the undersupply of local public goods. Then, the team studies how social-networks can help in increasing cooperation, adoption and investment in risk mitigation technology. To understand the channels, this project explores how information on risk can facilitate more cooperation and risk mitigation. This relatively low-cost approach is different from the current approach of the government of Bangladesh which is focused on expensive infrastructure of limited reach. The study is a randomized controlled trial in rural Bangladesh, where the researchers randomly assign interventions on (a) ex-ante risk sharing, (b) information provision on risk, and (c) the demonstration of intermediate-depth wells which yield low arsenic. The original data allow the research team to test the effectiveness of these interventions in terms of mitigation efforts and reduction in arsenic exposure to the population. The experimental design allows for documentation of the causal impact of the interventions. The research team intends to share the results with policy makers and organizations so that lessons learnt here can be applied in similar settings.

This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.