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The network structure of mutual support links: Evidence from rural Tanzania

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  • Margherita Comola

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

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    Abstract

    This paper takes a network perspective t oinvestigate how rural households in developing countries form the links through which they provide and get economic support. I test the hypothesis that indirect contacts (e.g. friends of friends) matter for link formation. An estimation procedure of a network formation model à la Jackson and Wolinsky (1996) is proposed and applied to data on a single village in Tanzania. Results show that when agents evaluate the net advantage of forming a link they also consider the wealth and the position of indirect contacts. The network externalities from indirect contacts are negative, which suggests a mechanism of competition over scarce resources. This paper proposes the first structural estimation of an endogenous network formation model, and also contributes to the development literature by overcoming the dyadic regression approach and providing evidence that village-level network structure has an explanatory value disregarded by all previous studies.

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    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number halshs-00585968.

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    Date of creation: Jun 2010
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    Handle: RePEc:hal:wpaper:halshs-00585968

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    Related research

    Keywords: mutual support ; network formation ; structural estimation ; indirect contacts;

    References

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    1. Andrea Galeotti & Sanjeev Goyal, 2002. "Network Formation with Heterogeneous Players," Tinbergen Institute Discussion Papers 02-069/1, Tinbergen Institute.
    2. Yann Bramoullé & Rachel Kranon, 2005. "Risk-Sharing Networks," Cahiers de recherche 0526, CIRPEE.
    3. Marcel Fafchamps, 2002. "Ethnicity and Networks in African Trade," CSAE Working Paper Series 2002-20, Centre for the Study of African Economies, University of Oxford.
    4. Garance Genicot & Debraj Ray, 2003. "Group Formation in Risk-Sharing Arrangements," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 87-113.
    5. Margherita Comola & Marcel Fafchamps, 2009. "Testing unilateral and bilateral link formation," PSE Working Papers halshs-00574971, HAL.
    6. Goldstein, Markus & de Janvry, Alain & Sadoulet, Elisabeth, 2003. "Is a Friend in Need a Friend Indeed? Inclusion and Exclusion in Mutual Insurance Networks in Southern Ghana," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt0d89m20g, Department of Agricultural & Resource Economics, UC Berkeley.
    7. Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 495-526, July.
    8. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February.
    9. Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 147-165, January.
    10. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-56, October.
    11. Marcel Fafchamps & Susan Lund, 2000. "Risk-Sharing Networks in Rural Philippines," Economics Series Working Papers 10, University of Oxford, Department of Economics.
    12. Platteau, Jean-Philippe, 1995. "An Indian Model of Aristocratic Patronage," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 636-62, October.
    13. Farber, Henry S, 1983. "The Determination of the Union Status of Workers," Econometrica, Econometric Society, vol. 51(5), pages 1417-37, September.
    14. John M. Abowd & Henry S. Farber, 1982. "Job queues and the union status of workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 35(3), pages 354-367, April.
    15. Matthew O. Jackson & Brian W. Rogers, 2007. "Meeting Strangers and Friends of Friends: How Random Are Social Networks?," American Economic Review, American Economic Association, vol. 97(3), pages 890-915, June.
    16. Ligon, Ethan, 1998. "Risk Sharing and Information in Village Economics," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 847-64, October.
    17. Fafchamps, Marcel, 1992. "Solidarity Networks in Preindustrial Societies: Rational Peasants with a Moral Economy," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 147-74, October.
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