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Informal insurance in social networks

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  • Bloch, Francis
  • Genicot, Garance
  • Ray, Debraj

Abstract

This paper studies bilateral insurance schemes across networks of individuals. While transfers are based on social norms, individuals must have the incentive to comply. We investigate the structure of self-enforcing insurance networks. Network links play two distinct and possibly conflictual roles. They act as conduits for both transfers and information; affecting the scope for insurance and the severity of punishments upon noncompliance. Their interaction leads to a characterization of stable networks as suitably "sparse" networks. Thickly and thinly connected networks tend to be stable, whereas intermediate degrees of connectedness jeopardize stability. Finally, we discuss the effect of discounting on stability.

Suggested Citation

  • Bloch, Francis & Genicot, Garance & Ray, Debraj, 2008. "Informal insurance in social networks," Journal of Economic Theory, Elsevier, vol. 143(1), pages 36-58, November.
  • Handle: RePEc:eee:jetheo:v:143:y:2008:i:1:p:36-58
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    More about this item

    Keywords

    Social networks Reciprocity network Risk sharing Norms Informal insurance Sparseness Stable networks;

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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