Stability in informal insurances: an approach by networks and overlapping coalitions
Based on empirical facts, we build a model of informal insurance institutions and study their stability. In our setting, risk sharing groups are overlapping homogenous coalitions, originating from networks of historical trust relationships. We derive a general folk theorem that works in an environment of uncertainty and we identify the determinants of stability which are robust to social norms. Our results provide theoretical explanations for empirical findings, including the puzzle that rich families in rural economies in developing countries consume less. Our approach bridges the two traditional approaches of clubs and bilateral agreements.
|Date of creation:||Oct 2014|
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