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The formation of risk sharing networks

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  • Fafchamps, Marcel
  • Gubert, Flore

Abstract

(English) This paper examines the endogenous formation of risk sharing networks in the rural Philippines. We show that geographic proximity is a major determinant of interpersonal relationships. We find little evidence that people form relationships to pool income risk. The existence of a pre-existing relationship between two individuals is a major determinant of subsequent gifts and informal loans between them, controlling for other proximity factors. From this we conclude that these transfers and informal loans are embedded in interpersonal relationships. These relationships are largely determined by proximity factors and are only weakly the result of purposeful diversification of income risk. There is, however, some evidence that the formation of risk sharing links is aimed at pooling health risk. The paper also makes a methodological contribution to the estimation of dyadic models. _________________________________ (français) Cet article examine la façon dont se forment les réseaux informels de partage des risques à partir de données collectées aux Philippines. Nous trouvons que les ménages enquêtés choisissent des partenaires potentiels d'entraide géographiquement proches d'eux mais non économiquement distants d'eux. Nous trouvons également que l'existence d'un lien ex ante est un déterminant important des dons et prêts informels observés entre ménages. Nous concluons de ces résultats empiriques que les transactions observées entre ménages s'inscrivent dans le cadre de relations de voisinage dont l'objectif premier n'est pas la diversification des risques de revenu. En revanche, un partage des risques liés à la santé semble être à l'oeuvre. L'article fait une contribution méthodologique à travers l'estimation de modèles dyadiques.
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Suggested Citation

  • Fafchamps, Marcel & Gubert, Flore, 2007. "The formation of risk sharing networks," Journal of Development Economics, Elsevier, vol. 83(2), pages 326-350, July.
  • Handle: RePEc:eee:deveco:v:83:y:2007:i:2:p:326-350
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    More about this item

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other

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