Formal insurance and altruism networks
Tizié Bene,
Yann Bramoullé and
Frédéric Deroïan
Journal of Development Economics, 2024, vol. 171, issue C
Abstract:
We study how altruism networks affect the demand for formal insurance. Agents with CARA utilities are connected through a network of altruistic relationships. Incomes are subject to a common shock and to a large individual shock, generating heterogeneous damages. Agents can buy formal insurance to cover the common shock, up to a coverage cap. We find that ex-post altruistic transfers induce interdependence in ex-ante formal insurance decisions. We characterize the Nash equilibria of the insurance game and show that agents act as if they are trying to maximize the expected utility of a representative agent with average damages. Altruism thus tends to increase demand of low-damage agents and to decrease demand of high-damage agents. Its aggregate impact depends on the interplay between demand homogenization, the zero lower bound and the coverage cap. We find that aggregate demand is higher with altruism than without altruism at low prices and lower at high prices. Nash equilibria are constrained Pareto efficient.
Keywords: Formal insurance; Informal transfers; Altruism networks (search for similar items in EconPapers)
JEL-codes: C72 D85 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304387824000841
Full text for ScienceDirect subscribers only
Related works:
Working Paper: Formal insurance and altruism networks (2024) 
Working Paper: Formal insurance and altruism networks (2021) 
Working Paper: Formal insurance and altruism networks (2021) 
Working Paper: Formal insurance and altruism networks (2021) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:171:y:2024:i:c:s0304387824000841
DOI: 10.1016/j.jdeveco.2024.103335
Access Statistics for this article
Journal of Development Economics is currently edited by M. R. Rosenzweig
More articles in Journal of Development Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().