American Economic Review Vol. 104 No. 1 2014

Consumption Risk-Sharing in Social Networks

Attila Ambrus¹; Markus Mobius²; Adam Szeidl³

¹ Department of Economics, Duke University, 419 Chapel Drive, Durham, NC 27708 (e-mail: ) · ² Microsoft Research, One Memorial Drive, Cambridge, MA 02142, University of Michigan, and NBER (e-mail: ) · ³ Department of Economics, Central European University, Nádor u. 11., Budapest, Hungary, and CEPR (e-mail: )

Abstract

We develop a model in which connections between individuals serve as social collateral to enforce informal insurance payments. We show that: (i) The degree of insurance is governed by the expansiveness of the network, measured with the per capita number of connections that groups have with the rest of the community. “Two-dimensional” networks—like real-world networks in Peruvian villages—are sufficiently expansive to allow very good risk-sharing. (ii) In second-best arrangements, insurance is local: agents fully share shocks within, but imperfectly between endogenously emerging risk-sharing groups. We also discuss how endogenous social collateral affects our results.

DOI

10.1257/aer.104.1.149

Volume

104

Issue

1

Pages

149-182

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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