Social Network Structure and Risk Sharing in Villages

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.