Insurance Without Kin? Private-order Institutions in Gold Rush California

Karen Clay (Carnegie Mellon University)

Abstract: During much of history, the primary form of insurance against negative health shocks and the related income shocks has been the extended family. This paper presents an economic institution that enabled miners in the California gold rush to pool the risk of a negative health shock in the absence of kin, despite the commitment problem inherent in such risk sharing. Risk sharing was governed by coalitions – economic institutions in which common expectations, risk sharing, and information-transmission supported the operation of reputation mechanisms in the midst of the gold rush. Historical records, census data on household structure, earnings, and real estate holdings, and a game-theoretic model are used to examine these institutions. By highlighting the conditions under which such institutions emerge, this work sheds light on the ability to mitigate risk of negative health shocks in other settings.


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