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The network structure of informal arrangements : evidence from rural Tanzania

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  • COMOLA Margherita

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Abstract

In developing countries, whenever formal economic and financial institutions lack strength, households are forced to rely on risk sharing and other informal arrangements based on pre-existing interpersonal relationships. This paper takes a network perspective to investigate how rural households form the links through which they provide and/or get economic support, and whether the connection structure of the community affects the formation of these links. I test the hypothesis that indirect contacts matter, that is, agents take into account not only potential partners’ characteristics, but also their position with respect to all other agents. A network formation framework with fully heterogeneous agents is first presented, following Jackson and Wolinsky (1996), an estimation procedure is then proposed and applied to data on a village in rural Tanzania. Results show that when agents evaluate the net advantage of forming a link they also consider the relative position and the wealth of indirect partners. My paper contributes to both network theory and the literature on risk sharing arrangements in that it proposes an innovative procedure to estimate endogenous network formation models, and provides evidence that network structure has an explanatory value disregarded by all previous studies, which are focused on direct relations only.

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Bibliographic Info

Paper provided by Laboratoire d'Economie Appliquee, INRA in its series Research Unit Working Papers with number 0708.

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Length: 44 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:lea:leawpi:0708

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Related research

Keywords: households; risk sharing arrangements; network structure; Tanzania.;

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Cited by:
  1. Margherita Comola & Marcel Fafchamps, 2009. "Testing unilateral and bilateral link formation," PSE Working Papers halshs-00574971, HAL.
  2. repec:hal:wpaper:halshs-00574971 is not listed on IDEAS
  3. Joost Vandenbossche & Thomas Demuynck, 2013. "Network Formation with Heterogeneous Agents and Absolute Friction," Computational Economics, Society for Computational Economics, vol. 42(1), pages 23-45, June.

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