Does Finance Make Us Less Social?

51 Pages Posted: 22 Aug 2018 Last revised: 25 Sep 2019

See all articles by Henrik Cronqvist

Henrik Cronqvist

University of Miami - Department of Finance

Mitch Warachka

Chapman University

Frank Yu

China Europe International Business School

Date Written: September 24, 2019

Abstract

Informal risk sharing within social networks and formal financial contracts both enable households to manage risk. Does the use of a financial contract to manage risk affect household participation in social networks? Yes. By subsidizing crop insurance, the Federal Crop Insurance Reform Act of 1994 doubled the use of crop insurance nationally within a year although changes in the use of this financial contract varied substantially across counties. Our main finding is that increased crop insurance usage decreased the number of religious adherents and the size of church congregations. Difference-in-Difference tests, with urban counties as a control group, and Spatial First Difference tests, with neighboring counties as a control group, both confirm that households substituted crop insurance for religiosity. In addition, consistent with moral hazard, increases in crop insurance usage decreased precautionary savings, crop diversification, and crop yields.

Keywords: Household Risk, Social Networks, Financial Contracts

JEL Classification: G2, G5, G52

Suggested Citation

Cronqvist, Henrik and Warachka, Mitch and Yu, Fang, Does Finance Make Us Less Social? (September 24, 2019). University of Miami Business School Research Paper No. 3229344. Available at SSRN: https://ssrn.com/abstract=3229344 or http://dx.doi.org/10.2139/ssrn.3229344

Henrik Cronqvist

University of Miami - Department of Finance ( email )

5250 University Drive
314-E Jenkins Building
Coral Gables, FL 33146
United States
(305) 284-9482 (Phone)

HOME PAGE: http://sites.google.com/site/henrikcronqvist/

Mitch Warachka (Contact Author)

Chapman University ( email )

Orange, CA 92866
United States

Fang Yu

China Europe International Business School ( email )

669 Hongfeng Road
Pudong
Shanghai, 201206
China

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