Consumption Risk-Sharing in Social Networks

Attila Ambrus, Markus Mobius and Adam Szeidl

American Economic Review, 2014, vol. 104, issue 1, 149-82

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.

JEL-codes: D85 G22 O15 O17 Z13 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.1.149
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Citations: View citations in EconPapers (116)

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Related works:
Working Paper: Consumption Risk-sharing in Social Networks (2010)
Working Paper: Consumption Risk-sharing in Social Networks (2007)
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