Consumption Risk-Sharing in Social Networks
American Economic Review
vol. 104,
no. 1, January 2014
(pp. 149-82)
Abstract
We develop a model in which connections between individuals serve as social collateral to enforce informal insurance payments. We show that: (i) The degree of insurance is governed by the expansiveness of the network, measured with the per capita number of connections that groups have with the rest of the community. "Two-dimensional" networks—like real-world networks in Peruvian villages—are sufficiently expansive to allow very good risk-sharing. (ii) In second- best arrangements, insurance is local: agents fully share shocks within, but imperfectly between endogenously emerging risk-sharing groups. We also discuss how endogenous social collateral affects our results.Citation
Ambrus, Attila, Markus Mobius, and Adam Szeidl. 2014. "Consumption Risk-Sharing in Social Networks." American Economic Review, 104 (1): 149-82. DOI: 10.1257/aer.104.1.149Additional Materials
JEL Classification
- D85 Network Formation and Analysis: Theory
- G22 Insurance; Insurance Companies; Actuarial Studies
- O15 Economic Development: Human Resources; Human Development; Income Distribution; Migration
- O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- Z13 Economic Sociology; Economic Anthropology; Social and Economic Stratification