Correlated disasters and need-based transfers: The limits of risk pooling systems in simulated ecologies

ABSTRACT Throughout their evolutionary history, humans have faced risks including drought, disease, natural disasters and other unexpected negative events. To deal with these risks, humans use a variety of risk management strategies, some of which involve relying on others in times of need in order to pool risk. However, the effectiveness of risk pooling strategies can be limited when there is high synchronicity of need. Here we investigate the limits of two resource transfer systems for pooling risk (need-based transfers, NBT, and debt-based transfers, DBT) in simulated ecologies with different degrees of correlated disasters using an agent-based model of the need-based transfer system of the Maasai. Overall, we find that survival is higher when shocks are less correlated among partners, when groups are larger, and when network structure is characterized by preferential attachment networks, which have a more modular structure than regular or small world networks. We also find that NBT strategies consistently outperform DBT strategies across a wide variety of parameter values and that the advantage of NBT over DBT is greatest when shocks are less correlated and group size is small. Our results also suggest that systems of sharing that are based on recipient need are less vulnerable than systems that are based on debt and credit, especially in small world and regular networks.