Social Networks and the Decision to Insure

56 Pages Posted: 15 Oct 2012 Last revised: 22 Oct 2012

See all articles by Jing Cai

Jing Cai

University of Michigan at Ann Arbor

Alain de Janvry

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy

Elisabeth Sadoulet

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy

Date Written: October 22, 2012

Abstract

Using data from a randomized experiment in rural China, this paper studies the influence of social networks on the decision to adopt a new weather insurance product and the mechanisms through which social networks operate. We provided financial education to a random subset of farmers and found a large social network effect on take-up: for untreated farmers, having an additional friend receiving financial education raised take-up by almost half as much as obtaining financial education directly, a spillover effect equivalent to offering a 15% reduction in the average insurance premium. By varying the information available to individuals about their peers’ take-up decisions and using randomized default options, we show that the positive social network effect is not driven by the diffusion of information on purchase decisions, but instead by the diffusion of knowledge about insurance. We also find that social network effects are larger in villages where households are more strongly connected, and when people who are the first to receive financial education are more central in the social network.

Keywords: Social network, Insurance demand, Learning

JEL Classification: D12, D83, G22, O12, Q12

Suggested Citation

Cai, Jing and de Janvry, Alain and Sadoulet, Elisabeth, Social Networks and the Decision to Insure (October 22, 2012). Available at SSRN: https://ssrn.com/abstract=2161686 or http://dx.doi.org/10.2139/ssrn.2161686

Jing Cai (Contact Author)

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Alain De Janvry

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy ( email )

2607 Hearst Avenue
Berkeley, CA 94720-7320
United States

Elisabeth Sadoulet

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy ( email )

2607 Hearst Avenue
Berkeley, CA 94720-7320
United States

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