Localized and incomplete mutual insurance
The practice of mutual insurance is conditioned by two types of transaction costs: "association" costs in establishing links with insurance partners and "extraction" costs in using these links to implement insurance transfers. Data on insurance-motivated water exchanges among households along two irrigation canals in Pakistan show that households exchange bilaterally with neighbors and family members but the majority exchange with members of tightly knit clusters. We, therefore, develop a model that endogenizes both cluster formation and the quality of insurance in the chosen cluster as a function of the relative importance of association and extraction costs. Full insurance at the community level, the object of most empirical tests of mutual insurance, is seen to be an extreme case. It is consequently not surprising that tests of the hypothesis of full risk pooling at the community level have led to rejection. The Pakistan data support the proposition that the configuration of insurance clusters and the intensity of exchanges within clusters vary with association and extraction costs. These costs are affected by kinship, distance to neighbors, and exposure to risk. Households with larger kinship groups, closer neighbors, and greater risk exposure insure through larger clusters and more intensive exchange.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert M. Townsend, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer.
- Marcel Fafchamps & Susan Lund, .
"Risk Sharing Networks in Rural Philippines,"
97014, Stanford University, Department of Economics.
- Gaynor, M. & Gertler, P., 1996.
"Moral hazard and Risk Speading in Partnerships,"
96-09, RAND - Reprint Series.
- 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.
- Townsend, Robert M, 1994.
"Risk and Insurance in Village India,"
Econometric Society, vol. 62(3), pages 539-91, May.
- Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
- Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
- Jalan, Jyotsna & Ravallion, Martin, 1997.
"Are the poor less well-insured? Evidence on vulnerability to income risk in rural China,"
Policy Research Working Paper Series
1863, The World Bank.
- Jalan, Jyotsna & Ravallion, Martin, 1999. "Are the poor less well insured? Evidence on vulnerability to income risk in rural China," Journal of Development Economics, Elsevier, vol. 58(1), pages 61-81, February.
- Matthew O. Jackson & Asher Wolinsky, 1995.
"A Strategic Model of Social and Economic Networks,"
1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Mark Rosenzweig & Andrew D. Foster, 1995.
"Imperfect Commitment, Altruism, and the Family: Evidence from Transfer Behavior in Low-Income Rural Areas,"
_075, University of Pennsylvania.
- Andrew D. Foster & Mark R. Rosenzweig, 2001. "Imperfect Commitment, Altruism, And The Family: Evidence From Transfer Behavior In Low-Income Rural Areas," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 389-407, August.
- Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-51, September.
- repec:iwt:bosers:h015155 is not listed on IDEAS
- Posner, Richard A, 1980.
"A Theory of Primitive Society, with Special Reference to Law,"
Journal of Law and Economics,
University of Chicago Press, vol. 23(1), pages 1-53, April.
- Richard A. Posner, 1979. "A Theory of Primitive Society with Special Reference to Law," University of Chicago - George G. Stigler Center for Study of Economy and State 7, Chicago - Center for Study of Economy and State.
- McCarthy, Nancy & de Janvry, Alain & Sadoulet, Elisabeth, 1998. "Land allocation under dual individual-collective use in Mexico," Journal of Development Economics, Elsevier, vol. 56(2), pages 239-264, August.
- 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.
- Bandaragoda, D. J. & Saeed ur Rehman, 1995. "Warabandi in Pakistan's canal irrigation systems: widening gap between theory and practice," IWMI Books, Reports H017571, International Water Management Institute.
- Kimball, Miles S, 1988. "Farmers' Cooperatives as Behavior Toward Risk," American Economic Review, American Economic Association, vol. 78(1), pages 224-32, March.
- Grimard, Franque, 1997. "Household consumption smoothing through ethnic ties: evidence from Cote d'Ivoire," Journal of Development Economics, Elsevier, vol. 53(2), pages 391-422, August.
- Rosenzweig, Mark R. & Stark, Oded, 1987.
"Consumption Smoothing, Migration and Marriage: Evidence from Rural India,"
7515, University of Minnesota, Economic Development Center.
- Rosenzweig, Mark R & Stark, Oded, 1989. "Consumption Smoothing, Migration, and Marriage: Evidence from Rural India," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 905-26, August.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:67:y:2002:i:2:p:245-274. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.