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Risk Pooling, Risk Preferences, and Social Networks

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  • Abigail Barr
  • Orazio Attanasio

Abstract

Using data from a field experiment conducted in seventy Colombian municipalities, we investigate who pools risk with whom when risk pooling arrangements are not formally enforced.� We explore the roles played by risk attitudes and network connections both theoretically and empirically.� We find that pairs of participants who share a bond of friendship or kinship are more likely to (1) join the same risk pooling group and to (2) group assortatively with respect to risk attitudes.� Also, consistent with our theoretical finding that when there is a problem of trust the process of pooling assortatively with respect to risk preferences is perturbed, we find (3) only weak evidence of such assorting among unfamiliar individuals.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number CSAE WPS/2009-20.

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Date of creation: 01 Nov 2009
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Handle: RePEc:oxf:wpaper:csae-wps/2009-20

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Keywords: Field experiment; Risk sharing; Social sanctions; Insurance; Group Formation; Matching;

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  1. De Weerdt, Joachim & Dercon, Stefan, 2006. "Risk-sharing networks and insurance against illness," Journal of Development Economics, Elsevier, Elsevier, vol. 81(2), pages 337-356, December.
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  3. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, Elsevier, vol. 71(2), pages 261-287, August.
  4. Attila Ambrus & Markus Mobius & Adam Szeidl, 2014. "Consumption Risk-Sharing in Social Networks," American Economic Review, American Economic Association, American Economic Association, vol. 104(1), pages 149-82, January.
  5. Fafchamps, Marcel & Gubert, Flore, 2007. "The formation of risk sharing networks," Journal of Development Economics, Elsevier, Elsevier, vol. 83(2), pages 326-350, July.
  6. Bloch, Francis & Genicot, Garance & Ray, Debraj, 2008. "Informal insurance in social networks," Journal of Economic Theory, Elsevier, Elsevier, vol. 143(1), pages 36-58, November.
  7. 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, Boston University - Department of Economics dp-149, Boston University - Department of Economics, revised Nov 2004.
  8. Bramoullé, Yann & Kranton, Rachel, 2007. "Risk-sharing networks," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 64(3-4), pages 275-294.
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  11. Stefan Dercon & Tessa Bold & Joachim De Weerdt & Alula Pankhurst, 2004. "Group-based Funeral Insurance in Ethiopia and Tanzania," CSAE Working Paper Series 2004-27, Centre for the Study of African Economies, University of Oxford.
  12. 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.
  13. Besley, T. & Coate, S., 1991. "Group Lending, Repayment Incentives And Social Collateral," Papers, Princeton, Woodrow Wilson School - Development Studies 152, Princeton, Woodrow Wilson School - Development Studies.
  14. Sergio Currarini & Matthew O. Jackson & Paolo Pin, 2009. "An Economic Model of Friendship: Homophily, Minorities, and Segregation," Econometrica, Econometric Society, Econometric Society, vol. 77(4), pages 1003-1045, 07.
  15. Seth Carpenter & Loic Sadoulet, 2000. "Risk-Matching in Credit Groups: Evidence from Guatemala," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1310, Econometric Society.
  16. Chung, Kim-Sau, 2000. "On the Existence of Stable Roommate Matchings," Games and Economic Behavior, Elsevier, Elsevier, vol. 33(2), pages 206-230, November.
  17. Arcand, Jean-Louis & Fafchamps, Marcel, 2012. "Matching in community-based organizations," Journal of Development Economics, Elsevier, Elsevier, vol. 98(2), pages 203-219.
  18. de Janvry, Alain & Sadoulet, Elisabeth & Winters, Paul C. & Murgai, Rinku, 2000. "Localized and Incomplete Mutual Insurance," Working Papers, University of New England, School of Economics 12905, University of New England, School of Economics.
  19. Chade, Hector, 2006. "Matching with noise and the acceptance curse," Journal of Economic Theory, Elsevier, Elsevier, vol. 129(1), pages 81-113, July.
  20. Ghatak, Maitreesh, 2000. "Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Effect," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(465), pages 601-31, July.
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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, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201331, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. 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, Springer, vol. 72(4), pages 537-571, April.
  3. Robinson, Jonathan, 2008. "Limited Insurance Within the Household: Evidence from a Field Experiment in Kenya," MPRA Paper 8314, University Library of Munich, Germany.
  4. 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.
  5. Giné, Xavier & Karlan, Dean S., 2014. "Group versus individual liability: Short and long term evidence from Philippine microcredit lending groups," Journal of Development Economics, Elsevier, Elsevier, vol. 107(C), pages 65-83.
  6. 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, Elsevier, vol. 70(9), pages 1571-1579, July.
  7. Baird, Timothy D. & Gray, Clark L., 2014. "Livelihood Diversification and Shifting Social Networks of Exchange: A Social Network Transition?," World Development, Elsevier, Elsevier, vol. 60(C), pages 14-30.
  8. 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.
  9. Juan Cárdenas & Nicolas Roux & Christian Jaramillo & Luis Martinez, 2014. "Is it my money or not? An experiment on risk aversion and the house-money effect," Experimental Economics, Springer, Springer, vol. 17(1), pages 47-60, March.
  10. 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.
  11. Charness, Gary & Viceisza, Angelino, 2011. "Comprehension and risk elicitation in the field: Evidence from rural Senegal," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 1135, International Food Policy Research Institute (IFPRI).
  12. Fernando Jaramillo & Hubert Kempf & Fabien Moizeau, 2013. "Heterogeneity and the formation of risk - sharing coalitions," DOCUMENTOS DE TRABAJO, UNIVERSIDAD DEL ROSARIO 011013, UNIVERSIDAD DEL ROSARIO.

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  1. Wikipedia talk:Articles for creation/Social Networks in Development Economics in Wikipedia English ne '')
  2. Risk Pooling, Risk Preferences, and Social Networks (AEJ:AE 2012) in ReplicationWiki

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