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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Attila Ambrus

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February 2010Consumption Risk-sharing in Social Networks
with Markus Mobius, Adam Szeidl: w15719
We develop a model of informal risk-sharing in social networks, where relationships between individuals can be used as social collateral to enforce insurance payments. We characterize incentive compatible risk-sharing arrangements and obtain two results. (1) The degree of informal insurance is governed by the expansiveness of the network, measured by the number of connections that groups of agents have with the rest of the community, relative to group size. Two-dimensional networks, where people have connections in multiple directions, are sufficiently expansive to allow very good risk-sharing. We show that social networks in Peruvian villages satisfy this dimensionality property; thus, our model can explain Townsend's (1994) puzzling observation that village communities often exhibit clos...

Published: Ambrus A, Mobius M, Szeidl A. Consumption Risk-sharing in Social Networks. American Economic Review. 2014;104(1):149-82. citation courtesy of

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