Consumption Risk-sharing in Social Networks


Ambrus A, Mobius M, Szeidl A. Consumption Risk-sharing in Social Networks. American Economic Review [Internet]. 2014;104 (1) :149-82.
Article507 KB
Online appendix355 KB


We develop a model in which connections between individuals serve as social collateral to enforce informal insurance payments. We show that: (1) The degree of insurance is governed by the expansiveness of the network, measured with the per capita number of connections that groups have with the rest of the community. Two-dimensional networks---like real-world networks in Peruvian villages---are sufficiently expansive to allow very good risk-sharing. (2) In second-best arrangements, insurance is local: agents fully share shocks within, but imperfectly between endogenously emerging risk-sharing groups. We also discuss how endogenous social collateral affects our results. (JEL D02, D31, D70)

Publisher's Version

Last updated on 04/29/2018