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The formation of risk sharing networks

Listed author(s):
  • Fafchamps, Marcel
  • Gubert, Flore

(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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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 83 (2007)
Issue (Month): 2 (July)
Pages: 326-350

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Handle: RePEc:eee:deveco:v:83:y:2007:i:2:p:326-350
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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  1. Rosenzweig, Mark R. & Wolpin, Kenneth I., 1988. "Migration selectivity and the effects of public programs," Journal of Public Economics, Elsevier, vol. 37(3), pages 265-289, December.
  2. De Weerdt, Joachim & Dercon, Stefan, 2006. "Risk-sharing networks and insurance against illness," Journal of Development Economics, Elsevier, vol. 81(2), pages 337-356, December.
  3. Marcel Fafchamps, 2003. "Rural Poverty, Risk and Development," Books, Edward Elgar Publishing, number 3127.
  4. Stefan Dercon & Pramila Krishnan, 2000. "In Sickness and in Health: Risk Sharing within Households in Rural Ethiopia," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 688-727, August.
  5. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April.
  6. Timothy Conley & Udry Christopher, 2001. "Social Learning Through Networks: The Adoption of New Agricultural Technologies in Ghana," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 668-673.
  7. Elizabeth Frankenberg & James P. Smith & Duncan Thomas, 2003. "Economic Shocks, Wealth, and Welfare," Journal of Human Resources, University of Wisconsin Press, vol. 38(2).
  8. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
  9. Christopher Udry, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 495-526.
  10. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-685, May.
  11. Quisumbing, Agnes R., 1994. "Intergenerational transfers in Philippine rice villages : Gender differences in traditional inheritance customs," Journal of Development Economics, Elsevier, vol. 43(2), pages 167-195, April.
  12. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
  13. Sanjeev Goyal & Marco J. van der Leij & José Luis Moraga-Gonzalez, 2006. "Economics: An Emerging Small World," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 403-432, April.
  14. Basu, Kaushik, 1986. "One Kind of Power," Oxford Economic Papers, Oxford University Press, vol. 38(2), pages 259-282, July.
  15. Mogues, Tewodaj & Carter, Michael R., 2004. "Social Capital And The Reproduction Of Inequality In Socially Polarized Economies," 2004 Annual meeting, August 1-4, Denver, CO 20132, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  16. Garance Genicot & Debraj Ray, 2003. "Group Formation in Risk-Sharing Arrangements," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 87-113.
  17. De Weerdt, Joachim & Dercon, Stefan, 2006. "Risk-sharing networks and insurance against illness," Journal of Development Economics, Elsevier, vol. 81(2), pages 337-356, December.
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