Social Investments, Informal Risk Sharing, and Inequality

56 Pages Posted: 10 Nov 2014

See all articles by Attila Ambrus

Attila Ambrus

Duke University - Department of Economics

Arun G. Chandrasekhar

Stanford University - Department of Economics

Matt Elliott

California Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: November 2014

Abstract

This paper studies costly network formation in the context of risk sharing. Neighboring agents negotiate agreements as in Stole and Zwiebel (1996), which results in the social surplus being allocated according to the Myerson value. We uncover two types of inefficiency: overinvestment in social relationships within group (e.g., caste, ethnicity), but underinvestment across group. We find a novel tradeoff between efficiency and equality. Both within and across groups, inefficiencies are minimized by increasing social inequality, which results in financial inequality and increasing the centrality of the most central agents. Evidence from 75 Indian village networks is congruent with our model.

Suggested Citation

Ambrus, Attila and Chandrasekhar, Arun G. and Elliott, Matt, Social Investments, Informal Risk Sharing, and Inequality (November 2014). NBER Working Paper No. w20669. Available at SSRN: https://ssrn.com/abstract=2521427

Attila Ambrus (Contact Author)

Duke University - Department of Economics ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Arun G. Chandrasekhar

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Matt Elliott

California Institute of Technology ( email )

Pasadena, CA 91125
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
8
Abstract Views
275
PlumX Metrics