Risk Pooling, Risk Preferences, and Social Networks

Authors: Orazio Attanasio, Abigail Barr,Juan Camilo Cardenasy, Garance Genicotx and Costas Meghir, 2011
Publication: American Economic Journal: Applied Economics, American Economic Association, vol. 4(2), pages 134-67, April.

Abstract: Using data from an experiment conducted in 70 Colombian communities, we investigate who pools risk with whom when trust is crucial to enforce risk pooling arrangements. We explore the roles played by risk attitudes and social networks. Both theoretically and empirically, we find that close friends and relatives group assortatively on risk attitudes and are more likely to join the same risk pooling group, while unfamiliar participants group less and rarely assort. These findings indicate that where there are advantages to grouping assortatively on risk attitudes those advantages may be inaccessible when trust is absentĀ or low.

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