Informal Risk Sharing with Local Information

105 Pages Posted: 13 Aug 2018 Last revised: 17 Dec 2020

See all articles by Attila Ambrus

Attila Ambrus

Duke University - Department of Economics

Wayne Yuan Gao

University of Pennsylvania - Department of Economics

Pau Milan

Universitat Autònoma de Barcelona; Barcelona Graduate School of Economics; MOVE (Markets, Organizations and Votes in Economics)

Date Written: December 16, 2020

Abstract

This paper considers the effect of contracting limitations in risk-sharing networks, arising
for example from observability, verifiability, complexity or cultural constraints. We
derive necessary and sufficient conditions for Pareto efficiency under these constraints in
a general setting, and we provide an explicit characterization of Pareto efficient bilateral
transfer profiles under CARA utility and normally distributed endowments. Our model
predicts that network centrality is positively correlated with consumption volatility, as
more central agents become quasi-insurance providers to more peripheral agents. The proposed
framework has important implications for the empirical specification of risk-sharing
tests, allowing for local risk-sharing groups that overlap within the village network.

Keywords: Social Network, Risk Sharing, Pareto Efficiency, Local Information

Suggested Citation

Ambrus, Attila and Gao, Wayne and Milan, Pau, Informal Risk Sharing with Local Information (December 16, 2020). Available at SSRN: https://ssrn.com/abstract=3220524 or http://dx.doi.org/10.2139/ssrn.3220524

Attila Ambrus

Duke University - Department of Economics ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Wayne Gao (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

HOME PAGE: http://www.waynegao.com

Pau Milan

Universitat Autònoma de Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain

Barcelona Graduate School of Economics ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

MOVE (Markets, Organizations and Votes in Economics) ( email )

Campus de Bellaterra-UAB Edifici B (s/n)
EDIFICI B
Cerdanyola del Vallès
, Barcelona 08193
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
92
Abstract Views
817
rank
339,299
PlumX Metrics