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Risk Pooling, Risk Preferences, and Social Networks

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Author Info

  • Orazio Attanasio
  • Abigail Barr
  • Juan Camilo Cardenas
  • Garance Genicot
  • Costas Meghir

Abstract

Using data from an experiment conducted in 70 Colombian communities, we investigate who pools risk with whom when trust is crucial for enforcing risk pooling arrangements. We explore the roles played by risk attitudes and social networks. Both empirically and theoretically, we find that close friends and relatives group assortatively on risk attitudes and are more likely to join the same risk pooling group, while unfamiliar participants group less and rarely assort. These findings indicate that where there are advantages to grouping assortatively on risk attitudes those advantages may be inaccessible when trust is absent or low. (JEL C93, O12, O18, Z13)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/app.4.2.134
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Applied Economics.

Volume (Year): 4 (2012)
Issue (Month): 2 (April)
Pages: 134-67

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Handle: RePEc:aea:aejapp:v:4:y:2012:i:2:p:134-67

Note: DOI: 10.1257/app.4.2.134
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References

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  1. Chowdhury, Prabal Roy, 2007. "Group-lending with sequential financing, contingent renewal and social capital," Journal of Development Economics, Elsevier, vol. 84(1), pages 487-506, September.
  2. Stefan Dercon & Joachim de Weerdt, 2004. "Risk-Sharing Networks And Insurance Against Illness," Development and Comp Systems 0409019, EconWPA.
  3. Dercon, Stefan & De Weerdt, Joachim & Bold, Tessa & Pankhurst, Alula, 2006. "Group-based funeral insurance in Ethiopia and Tanzania," World Development, Elsevier, vol. 34(4), pages 685-703, April.
  4. Bramoullé, Yann & Kranton, Rachel, 2007. "Risk-sharing networks," Journal of Economic Behavior & Organization, Elsevier, vol. 64(3-4), pages 275-294.
  5. Chade, Hector, 2006. "Matching with noise and the acceptance curse," Journal of Economic Theory, Elsevier, vol. 129(1), pages 81-113, July.
  6. Marcel Fafchamps & Susan Lund, 2000. "Risk-Sharing Networks in Rural Philippines," Economics Series Working Papers 10, University of Oxford, Department of Economics.
  7. Garance Genicot & Debraj Ray, 2003. "Group Formation in Risk-Sharing Arrangements," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 87-113.
  8. Patrick Legros & Andrew F. Newman, 2002. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-149, Boston University - Department of Economics, revised Nov 2004.
  9. Murgai, Rinku & Winters, Paul & Sadoulet, Elisabeth & Janvry, Alain de, 2002. "Localized and incomplete mutual insurance," Journal of Development Economics, Elsevier, vol. 67(2), pages 245-274, April.
  10. Abigail Barr & Marleen Dekker & Marcel Fafchamps, 2012. "Who Shares Risk with Whom under Different Enforcement Mechanisms?," Economic Development and Cultural Change, University of Chicago Press, vol. 60(4), pages 677 - 706.
  11. Francis Bloch (GREQAM and Universite de la Mediterranee), Garance Genicot (Georgetown University, and Debraj Ray (New York University and Instituto de Analisis Economico (CSIC)), 2004. "Informal Insurance in Social Networks," Working Papers gueconwpa~04-04-16, Georgetown University, Department of Economics.
  12. Arcand, Jean-Louis & Fafchamps, Marcel, 2012. "Matching in community-based organizations," Journal of Development Economics, Elsevier, vol. 98(2), pages 203-219.
  13. Sergio Currarini & Matthew O. Jackson & Paolo Pin, 2009. "An Economic Model of Friendship: Homophily, Minorities, and Segregation," Econometrica, Econometric Society, vol. 77(4), pages 1003-1045, 07.
  14. Chung, Kim-Sau, 2000. "On the Existence of Stable Roommate Matchings," Games and Economic Behavior, Elsevier, vol. 33(2), pages 206-230, November.
  15. Attila Ambrus & Markus Mobius & Adam Szeidl, 2010. "Consumption Risk-sharing in Social Networks," NBER Working Papers 15719, National Bureau of Economic Research, Inc.
  16. Fafchamps, Marcel & Gubert, Flore, 2007. "The formation of risk sharing networks," Journal of Development Economics, Elsevier, vol. 83(2), pages 326-350, July.
  17. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  18. Hans Binswanger, 1980. "Attitudes toward risk: Experimental measurement in rural india," Artefactual Field Experiments 00009, The Field Experiments Website.
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Citations

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Cited by:
  1. Simone Gobien & Björn Vollan, 2013. "Playing with the social network: Social cohesion in resettled and non-resettled communities in Cambodia," MAGKS Papers on Economics 201331, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Catia Batista & Dan Silverman & Dean Yang, 2013. "Directed Giving: Evidence from an Inter-Household Transfer Experiment," CReAM Discussion Paper Series 1321, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  3. Charness, Gary & Viceisza, Angelino, 2012. "Comprehension and Risk Elicitation in the Field: Evidence from Rural Senegal," University of California at Santa Barbara, Economics Working Paper Series qt5512d150, Department of Economics, UC Santa Barbara.
  4. Daniela Di Cagno & Emanuela Sciubba & Marco Spallone, 2012. "Choosing a gambling partner: testing a model of mutual insurance in the lab," Theory and Decision, Springer, vol. 72(4), pages 537-571, April.
  5. Anderies, John M. & Janssen, Marco A. & Bousquet, François & Cardenas, Juan-Camilo & Castillo, Daniel & Lopez, Maria-Claudio & Tobias, Robert & Vollan, Björn & Wutich, Amber, 2011. "The challenge of understanding decisions in experimental studies of common pool resource governance," Ecological Economics, Elsevier, vol. 70(9), pages 1571-1579, July.
  6. repec:dgr:uvatin:2012145 is not listed on IDEAS
  7. Wendy Janssens & Berber Kramer, 2012. "The Social Dilemma of Microinsurance: A Framed Field Experiment on Free-Riding and Coordination," Tinbergen Institute Discussion Papers 12-145/V, Tinbergen Institute, revised 23 Jan 2014.
  8. Gobien, Simone & Vollan, Björn, 2013. "Playing with the Social Net: Solidarity Differences in Resettled and Non-Resettled Communities in Cambodia," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79985, Verein für Socialpolitik / German Economic Association.

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