Networks, Finance, and Development: Evidence from Hunter-Gatherers

New York University and Farzad Saidi

No 615, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: This paper sheds light on the relationship between social networks and market incompleteness in an Amazonian hunter-gatherer society. In that economy, individuals enter informal contracts to finance, besides their foraging-farming activities, relatively risky human capital investments in pursuit of employment outside the villages. While the default financing contract can be characterized as debt, insurance in the form of equity-like financing is only available from fellow villagers. However, in order to maintain the stability of the village networks, human capital investments are underfunded with insurance. I show that this capital market imperfection potentially leads to substantial underinvestment in human capital, and calibrate the counterfactual efficiency gains from completing the market.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:615

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