Informal insurance in social networks

Francis Bloch, Garance Genicot, Debraj Ray

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper studies bilateral insurance schemes across networks of individuals. While transfers are based on social norms, individuals must have the incentive to comply. We investigate the structure of self-enforcing insurance networks. Network links play two distinct and possibly conflictual roles. They act as conduits for both transfers and information; affecting the scope for insurance and the severity of punishments upon noncompliance. Their interaction leads to a characterization of stable networks as suitably "sparse" networks. Thickly and thinly connected networks tend to be stable, whereas intermediate degrees of connectedness jeopardize stability. Finally, we discuss the effect of discounting on stability.

    Original languageEnglish (US)
    Pages (from-to)36-58
    Number of pages23
    JournalJournal of Economic Theory
    Volume143
    Issue number1
    DOIs
    StatePublished - Nov 2008

    Keywords

    • Informal insurance
    • Norms
    • Reciprocity network
    • Risk sharing
    • Social networks
    • Sparseness
    • Stable networks

    ASJC Scopus subject areas

    • Economics and Econometrics

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