[go: up one dir, main page]

IDEAS home Printed from https://ideas.repec.org/p/ads/wpaper/0079.html
   My bibliography  Save this paper

Consumption Risk-sharing in Social Networks

Author

Listed:
  • Attila Ambrus

    (Harvard University)

  • Markus Mobius

    (Harvard University)

  • Adam Szeidl

    (University of California, Berkeley)

Abstract
We build a model of informal risk-sharing among agents organized in a social network. A connection between individuals serves as collateral that can be used to enforce insurance payments. We characterize incentive compatible risk-sharing arrangements for any network structure, and develop two main results. (1) Expansive networks, where every group of agents have a large number of links with the rest of the community relative to the size of the group, facilitate better risk-sharing. In particular, “two-dimensional” village networks organized by geography are sufficiently expansive to allow very good risk-sharing. (2) In second-best arrangements, agents organize in endogenous “risksharing islands” in the network, where shocks are shared fully within but imperfectly across islands. As a result, risk-sharing in second-best arrangements is local: socially closer agents insure each other more. In an application of the model, we explore the spillover effect of development aid on the consumption of non-treated individuals.

Suggested Citation

  • Attila Ambrus & Markus Mobius & Adam Szeidl, 2007. "Consumption Risk-sharing in Social Networks," Economics Working Papers 0079, Institute for Advanced Study, School of Social Science.
  • Handle: RePEc:ads:wpaper:0079
    as

    Download full text from publisher

    File URL: http://www.sss.ias.edu/publications/papers/econpaper79.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. De Weerdt, Joachim & Dercon, Stefan, 2006. "Risk-sharing networks and insurance against illness," Journal of Development Economics, Elsevier, vol. 81(2), pages 337-356, December.
    2. repec:dau:papers:123456789/10840 is not listed on IDEAS
    3. Glenn Ellison, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 567-588.
    4. Dean Karlan & Markus Mobius & Tanya Rosenblat & Adam Szeidl, 2009. "Trust and Social Collateral," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1307-1361.
    5. Bloch, Francis & Genicot, Garance & Ray, Debraj, 2008. "Informal insurance in social networks," Journal of Economic Theory, Elsevier, vol. 143(1), pages 36-58, November.
    6. Simon Gachter & Ernst Fehr, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, vol. 90(4), pages 980-994, September.
    7. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    8. David Miller & Nageeb Ali, 2008. "Cooperation and Collective Enforcement in Networked Societies," 2008 Meeting Papers 970, Society for Economic Dynamics.
    9. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 209-244.
    10. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-548, June.
    11. Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, vol. 69(2), pages 515-526, March.
    12. Bramoullé, Yann & Kranton, Rachel, 2007. "Risk-sharing networks," Journal of Economic Behavior & Organization, Elsevier, vol. 64(3-4), pages 275-294.
    13. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-180, January.
    14. Bernheim, B. Douglas & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria II. Applications," Journal of Economic Theory, Elsevier, vol. 42(1), pages 13-29, June.
    15. Orazio Attanasio & Abigail Barr & Juan Camilo Cardenas & Garance Genicot & Costas Meghir, 2012. "Risk Pooling, Risk Preferences, and Social Networks," American Economic Journal: Applied Economics, American Economic Association, vol. 4(2), pages 134-67, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gulesci,Selim, 2020. "Poverty Alleviation and Interhousehold Transfers : Evidence from BRAC's Graduation Program in Bangladesh," Policy Research Working Paper Series 9467, The World Bank.
    2. Jaramillo, Fernando & Kempf, Hubert & Moizeau, Fabien, 2015. "Heterogeneity and the formation of risk-sharing coalitions," Journal of Development Economics, Elsevier, vol. 114(C), pages 79-96.
    3. Tessa Bold, 2009. "Implications of Endogenous Group Formation for Efficient Risk‐Sharing," Economic Journal, Royal Economic Society, vol. 119(536), pages 562-591, March.
    4. Marcel Fafchamps & Aditya Shrinivas, 2022. "Risk Pooling and Precautionary Saving in Village Economies," NBER Working Papers 30128, National Bureau of Economic Research, Inc.
    5. Manuela Angelucci & Giacomo De Giorgi, 2009. "Indirect Effects of an Aid Program: How Do Cash Transfers Affect Ineligibles' Consumption?," American Economic Review, American Economic Association, vol. 99(1), pages 486-508, March.
    6. Digvijay S. Negi & Christopher B. Barrett, 2024. "Consumption Smoothing, Commodity Markets, and Informal Transfers," Working Papers 116, Ashoka University, Department of Economics.
    7. Jackson, Matthew O. & Zenou, Yves, 2015. "Games on Networks," Handbook of Game Theory with Economic Applications,, Elsevier.
    8. Sarolta Laczo, 2010. "Estimating Dynamic Contracts: Risk Sharing in Village Economies," 2010 Meeting Papers 687, Society for Economic Dynamics.
    9. Matthew Elliott & Arun Chandrasekhar & Attila Ambrus, 2015. "Social Investments, Informal Risk Sharing, and Inequality," 2015 Meeting Papers 189, Society for Economic Dynamics.
    10. Juan Daniel Hernandez & Fernando Jaramillo & Hubert Kempf & Fabien Moizeau & Thomas Vendryes, 2023. "Limited Commitment, Social Control and Risk-Sharing Coalitions in Village Economies," Documents de recherche 23-03, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    11. Sawada, Yasuyuki & Nakata, Hiroyuki & Kotera, Tomoaki, 2017. "Self-Production, Friction, and Risk Sharing against Disasters: Evidence from a Developing Country," World Development, Elsevier, vol. 94(C), pages 27-37.
    12. Blumenstock, Joshua E. & Eagle, Nathan & Fafchamps, Marcel, 2016. "Airtime transfers and mobile communications: Evidence in the aftermath of natural disasters," Journal of Development Economics, Elsevier, vol. 120(C), pages 157-181.
    13. Aida, Takeshi, 2015. "Spatial vs. Social Network Effects in Risk Sharing," Working Papers 89, JICA Research Institute.
    14. Attila Ambrus & Arun G. Chandrasekhar & Matt Elliott, 2014. "Social Investments, Informal Risk Sharing, and Inequality," NBER Working Papers 20669, National Bureau of Economic Research, Inc.
    15. William Jack & Tavneet Suri, 2014. "Risk Sharing and Transactions Costs: Evidence from Kenya's Mobile Money Revolution," American Economic Review, American Economic Association, vol. 104(1), pages 183-223, January.
    16. Lee Cronk & Athena Aktipis, 2021. "Design principles for risk-pooling systems," Nature Human Behaviour, Nature, vol. 5(7), pages 825-833, July.
    17. Xiao Yu Wang, 2014. "Risk Sorting, Portfolio Choice, and Endogenous Informal Insurance," NBER Working Papers 20429, National Bureau of Economic Research, Inc.
    18. Rafael P. Ribas, 2014. "Liquidity Constraints, Informal Financing, and Entrepreneurship: Direct and Indirect Effects of a Cash Transfer Programme," Working Papers 131, International Policy Centre for Inclusive Growth.
    19. Belhaj, Mohamed & Deroïan, Frédéric, 2012. "Risk taking under heterogenous revenue sharing," Journal of Development Economics, Elsevier, vol. 98(2), pages 192-202.
    20. Tessa Bold & Stefan Dercon, 2009. "Contract Design in Insurance Groups," CSAE Working Paper Series 2009-04, Centre for the Study of African Economies, University of Oxford.

    More about this item

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ads:wpaper:0079. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nancy Cotterman (email available below). General contact details of provider: https://edirc.repec.org/data/ssiasus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.