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Consumption Risk-Sharing in Social Networks

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  • Attila Ambrus
  • Markus Mobius
  • Adam Szeidl

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.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 104 (2014)
Issue (Month): 1 (January)
Pages: 149-82

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Handle: RePEc:aea:aecrev:v:104:y:2014:i:1:p:149-82

Note: DOI: 10.1257/aer.104.1.149
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  1. Gubert, Flore & Fafchamps, Marcel, 2007. "The Formation of Risk Sharing Networks," Economics Papers from University Paris Dauphine 123456789/4392, Paris Dauphine University.
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Citations

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Cited by:
  1. Belhaj, Mohamed & Deroïan, Frédéric, 2012. "Risk taking under heterogenous revenue sharing," Journal of Development Economics, Elsevier, vol. 98(2), pages 192-202.
  2. Regibeau, Pierre & Rockett, Katharine, 2011. "Economic analysis of resilience: a framework for local policy response based on new case studies," MPRA Paper 38548, University Library of Munich, Germany, revised 30 Apr 2012.
  3. Ligon, Ethan & Schechter, Laura, 2012. "Motives for sharing in social networks," Journal of Development Economics, Elsevier, vol. 99(1), pages 13-26.
  4. Abigail Barr & Orazio Attanasio, 2009. "Risk Pooling, Risk Preferences, and Social Networks," Economics Series Working Papers CSAE WPS/2009-20, University of Oxford, Department of Economics.
  5. Feigenberg, Benjamin & Field, Erica M. & Pande, Rohini, 2010. "Building Social Capital through Microfinance," Working Paper Series rwp10-019, Harvard University, John F. Kennedy School of Government.
  6. Lee, Samuel & Persson, Petra, 2012. "Financing from Family and Friends," Working Paper Series 933, Research Institute of Industrial Economics.
  7. Konrad B. Burchardi & Tarek A. Hassan, 2011. "The Economic Impact of Social Ties: Evidence from German Reunification," SOEPpapers on Multidisciplinary Panel Data Research 405, DIW Berlin, The German Socio-Economic Panel (SOEP).
  8. Friebel, Guido & Gallego, Juan Miguel & Mendola, Mariapia, 2011. "Xenophobic Attacks, Migration Intentions and Networks: Evidence from the South of Africa," IZA Discussion Papers 5920, Institute for the Study of Labor (IZA).
  9. Marco Pelliccia, 2012. "Risk-sharing and probabilistic network structure," Birkbeck Working Papers in Economics and Finance 1214, Birkbeck, Department of Economics, Mathematics & Statistics.
  10. Pierucci, Eleonora & Ventura, Luigi, 2012. "International risk sharing and globalization," MPRA Paper 35869, University Library of Munich, Germany.
  11. Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2013. "Systemic Risk and Stability in Financial Networks," NBER Working Papers 18727, National Bureau of Economic Research, Inc.

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