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The Formation of Risk Sharing Networks

  • Marcel Fafchamps
  • Flore Gubert

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.

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File URL: http://www.gprg.org/pubs/workingpapers/pdfs/gprg-wps-037.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number GPRG-WPS-037.

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Date of creation: 01 Dec 2005
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Handle: RePEc:oxf:wpaper:gprg-wps-037
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  17. Gubert, Flore & Fafchamps, Marcel, 2007. "Contingent Loan Repayment in the Philippines," Economics Papers from University Paris Dauphine 123456789/4568, Paris Dauphine University.
  18. Marcel Fafchamps & Marco J. van der Leij, 2006. "Scientific Networks and Co-authorship," Economics Series Working Papers 256, University of Oxford, Department of Economics.
  19. 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.
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  28. Glewwe, Paul & Hall, Gillette, 1998. "Are some groups more vulnerable to macroeconomic shocks than others? Hypothesis tests based on panel data from Peru," Journal of Development Economics, Elsevier, vol. 56(1), pages 181-206, June.
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  30. 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.
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