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

  • New York University
  • Farzad Saidi

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.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 615.

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Date of creation: 2011
Date of revision:
Handle: RePEc:red:sed011:615
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. Ingela Alger & J�rgen W. Weibull, 2010. "Kinship, Incentives, and Evolution," American Economic Review, American Economic Association, vol. 100(4), pages 1725-58, September.
  2. Alesina, Alberto F & Algan, Yann & Cahuc, Pierre & Giuliano, Paola, 2010. "Family Values and the Regulation of Labor," CEPR Discussion Papers 7688, C.E.P.R. Discussion Papers.
  3. Mark Huggett and Greg Kaplan, 2010. "Human Capital Values and Returns:Bounds Implied By Earnings and Asset Returns Data," Working Papers gueconwpa~10-10-02, Georgetown University, Department of Economics.
  4. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-56, October.
  5. Markus Mobius & Adam Szeidl, 2007. "Trust and Social Collateral," NBER Working Papers 13126, National Bureau of Economic Research, Inc.
  6. Oded Galor & Omar Moav & Dietrich Vollrath, 2006. "Inequality in Land Ownership, the Emergence of Human Capital Promoting Institutions, and the Great Divergence," DEGIT Conference Papers c011_001, DEGIT, Dynamics, Economic Growth, and International Trade.
  7. Quoc-Anh Do & Stephen Leider & Markus M. Mobius & Tanya Rosenblat, 2008. "Directed Altruism and Enforced Reciprocity in Social Networks," Working Papers 17-2008, Singapore Management University, School of Economics.
  8. repec:oup:restud:v:64:y:1997:i:3:p:311-35 is not listed on IDEAS
  9. Rosenzweig, Mark R., 1986. "Risk, Implicit Contracts and the Family in Rural Areas of Low-Income Countries," Bulletins 7518, University of Minnesota, Economic Development Center.
  10. repec:oup:restud:v:61:y:1994:i:3:p:495-526 is not listed on IDEAS
  11. Abhijit Banerjee & Kaivan Munshi, 2004. "How Efficiently is Capital Allocated? Evidence from the Knitted Garment Industry in Tirupur," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 19-42.
  12. Stephen Leider & Markus M. Möbius & Tanya Rosenblat & Quoc-Anh Do, 2009. "Directed Altruism and Enforced Reciprocity in Social Networks," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1815-1851.
  13. repec:oup:restud:v:65:y:1998:i:4:p:631-53 is not listed on IDEAS
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