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Networks, Finance, and Development: Evidence from Hunter-Gatherers

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  • New York University
  • Farzad Saidi

Abstract

This paper sheds light on the relationship between social networks and market incompleteness in an Amazonian hunter-gatherer society. In that economy, individuals enter informal contracts to finance, besides their foraging-farming activities, relatively risky human capital investments in pursuit of employment outside the villages. While the default financing contract can be characterized as debt, insurance in the form of equity-like financing is only available from fellow villagers. However, in order to maintain the stability of the village networks, human capital investments are underfunded with insurance. I show that this capital market imperfection potentially leads to substantial underinvestment in human capital, and calibrate the counterfactual efficiency gains from completing the market.

Suggested Citation

  • New York University & Farzad Saidi, 2011. "Networks, Finance, and Development: Evidence from Hunter-Gatherers," 2011 Meeting Papers 615, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:615
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    Cited by:

    1. Samuel Lee & Petra Persson, 2016. "Financing from Family and Friends," Review of Financial Studies, Society for Financial Studies, vol. 29(9), pages 2341-2386.
    2. Hu, Jinyan & Jiang, Mingming & Zhang, Bo, 2015. "Social Network, Financial Market Participation and Asset Allocation: Evidence from China," RIEI Working Papers 2015-06, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration.

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