Investments in social ties, risk sharing, and inequality

Collaboration Networks, Structural Holes, and Innovation: A Longitudinal Study

Attila Ambrus and Matt Elliott

The Review of Economic Studies, 2021, vol. 88, issue 4, 1624-1664

Abstract: This article investigates stable and efficient networks in the context of risk sharing, when it is costly to establish and maintain relationships that facilitate risk sharing. We find a novel trade-off between efficiency and equality: the most stable efficient networks also generate the most inequality. We then suppose that individuals can be split into groups, assuming that incomes across groups are less correlated than within a group but relationships across groups are more costly to form. The tension between efficiency and equality extends to these correlated income structures. More-central agents have stronger incentives to form across-group links, reaffirming the efficiency benefits of having highly central agents. Our results are robust to many extensions. In general, endogenously formed networks in the risk-sharing context tend to exhibit highly asymmetric structures, which can lead to stark inequalities in consumption levels.

Keywords: Social networks; Informal risk-sharing; Inequality; C78; D31; D61; D85 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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