Abstract
This paper studies how the structure of friendship networks affects risk sharing in villages. Using techniques for partially identified econometric models, we construct a sharp bound on the true risk-sharing rate, which takes into account nomination errors in survey responses, and implement interval estimation. We show that the diameter of a network has a negative and significant impact on risk sharing. Our result implies that policymakers can effectively improve risk sharing between households by adopting policies that increase the network connectivity of individuals in the periphery of the social network.
References
Alatas, V., A. Banerjee, A. G. Chandrasekhar, R. Hanna., and B. A. Olken. (2016). “Network Structure and the Aggregation of Information: Theory and Evidence from Indonesia.” American Economic Review 106: 1663–1704.10.1257/aer.20140705Search in Google Scholar
Ambrus, A., M. Mobius, and A. Szeidl. (2014). “Consumption Risk-Sharing in Social Networks.” American Economic Review 104: 149–82.10.1257/aer.104.1.149Search in Google Scholar
Banerjee, A., A. G. Chandrasekhar, E. Duflo, and M. O. Jackson. (2013). “The Diffusion of Microfinance.” Science 341: 363–370.10.3386/w17743Search in Google Scholar
Beresteanu, A. and F. Molinari. (2008). “Asymptotic Properties for a Class of Partially Identified Models.” Econometrica 76: 763–814.10.1111/j.1468-0262.2008.00859.xSearch in Google Scholar
Bloch, F., G. Genicot, and D. Ray. 2008. “Informal Insurance in Social Networks.” Journal of Economic Theory 143 (1): 36–58.10.1016/j.jet.2008.01.008Search in Google Scholar
Bollobás, B., C. Borgs, J. Chayes, and O. Riordan. (2010). “Percolation on Dense Graph Sequences.” The Annals of Probability 38: 150–183.10.1214/09-AOP478Search in Google Scholar
Coleman, J. S. (1988). “Social Capital in the Creation of Human Capital.” American Journal of Sociology 94: S95–S120.10.1086/228943Search in Google Scholar
Fafchamps, M. (2011). “Risk Sharing Between Households.” Handbook of Social Economics 1: 1255–1279.10.1016/B978-0-444-53707-2.00007-4Search in Google Scholar
Jackson, M. O., T. Rodriguez-Barraquer, and X. Tan. (2012). “Social Capital and Social Quilts: Network Patterns of Favor Exchange.” The American Economic Review 102: 1857–1897.10.1257/aer.102.5.1857Search in Google Scholar
Jackson, M. O. and B. W. Rogers. (2005). “The Economics of Small Worlds.” Journal of the European Economic Association 3: 617–627.10.1162/jeea.2005.3.2-3.617Search in Google Scholar
Jackson, M. O., B. W. Rogers, and Y. Zenou (2017). “The Economic Consequences of Social-Network Structure.” Journal of Economic Literature 55: 49–95.10.1257/jel.20150694Search in Google Scholar
Nicoletti, C., F. Peracchi, and F. Foliano. (2011). “Estimating Income Poverty in the Presence of Missing Data and Measurement Error.” Journal of Business & Economic Statistics 29: 61–72.10.1198/jbes.2010.07185Search in Google Scholar
Thomas, J. and T. Worrall (1990). “Income Fluctuation and Asymmetric Information: An Example of a Repeated Principal-Agent Problem.” Journal of Economic Theory 51: 367–390.10.1016/0022-0531(90)90023-DSearch in Google Scholar
Townsend, R. (1994). “Risk and Insurance in Village India.” Econometrica 62: 539–591.10.2307/2951659Search in Google Scholar
© 2018 Walter de Gruyter GmbH, Berlin/Boston