Does Finance Make Us Less Social?

Journal of Financial and Quantitative Analysis (JFQA), forthcoming

57 Pages Posted: 22 Aug 2018 Last revised: 17 Sep 2021

See all articles by Henrik Cronqvist

Henrik Cronqvist

University of Miami - Department of Finance

Mitch Warachka

Chapman University - The George L. Argyros School of Business & Economics

Frank Yu

China Europe International Business School

Date Written: August 10, 2021

Abstract

Informal risk sharing within social networks and formal financial contracts both enable households to manage risk. We find that financial contracting reduces participation in social networks. Specifically, increased crop insurance usage decreased local religious adherence and congregation membership in agricultural communities. Our identification utilizes the Federal Crop Insurance Reform Act of 1994 that doubled crop insurance usage nationally within a year, although changes in usage varied across counties. Difference-in-Difference and Spatial First Difference tests confirm that households substituted insurance for religiosity. This substitution was associated with reductions in crop diversification and crop yields, indicating an increase in moral hazard.

Keywords: Household Risk Management, Financial Contracts, Social Networks

JEL Classification: G2, G51, G52

Suggested Citation

Cronqvist, Henrik and Warachka, Mitch and Yu, Frank, Does Finance Make Us Less Social? (August 10, 2021). Journal of Financial and Quantitative Analysis (JFQA), forthcoming, 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
220 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 - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States

Frank Yu

China Europe International Business School ( email )

669 Hongfeng Road
Pudong
Shanghai, 201206
China

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