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Insurance and Propagation in Village Networks

Cynthia Kinnan (), Krislert Samphantharak, Robert Townsend and Diego Vera-Cossio
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Krislert Samphantharak: Bank of Thailand
Robert Townsend: Massachusetts Institute of Technology
Diego Vera-Cossio: Inter-American Development Bank

PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: We study the dual role of networks in providing insurance and in propagating idiosyncratic shocks by using variation in the timing of severe shocks on health spending experienced by households in Thai villages. We find no impacts on food consumption. Smoothing is largely achieved through local gift and loan networks. However, insurance is partial for some households so they adjust their production decisions-drawing on their working capital, cutting input spending, and reducing labor hiring, hence propagating the shocks to other households. We find that upstream businesses close to the underinsured households in the supply chain network experience reduced local sales and increased inventories. Likewise, workers closer to the underinsured households in the labor network experience declined probability of working locally and reduced earnings. We find evidence of ex-post adjustments of these upstream households through shifting resources towards activities with lower exposure to local shocks. Our results suggest that social (village-level) gains of expanding health insurance might be higher than private (household-level) gains.

Keywords: Entrepreneurship; Risk Sharing; Propagation; Production Networks (search for similar items in EconPapers)
JEL-codes: D13 D22 I15 Q12 (search for similar items in EconPapers)
Pages: 74 page
Date: 2019-09, Revised 2019-09
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