Does Finance Make Us Less Social?

43 Pages Posted: 13 Aug 2018 Last revised: 17 Nov 2020

See all articles by Henrik Cronqvist

Henrik Cronqvist

Chapman University - The George L. Argyros College of Business and Economics

Mitch Warachka

Chapman University - The George L. Argyros College of Business and Economics

Frank Yu

China Europe International Business School

Date Written: August 13, 2018

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, with urban and neighboring counties as respective control groups, 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, Social Networks, FinTech

JEL Classification: G02, G28

Suggested Citation

Cronqvist, Henrik and Warachka, Mitch and Yu, Frank, Does Finance Make Us Less Social? (August 13, 2018). Finance Down Under 2019 Building on the Best from the Cellars of Finance, Available at SSRN: https://ssrn.com/abstract=3230369 or http://dx.doi.org/10.2139/ssrn.3230369

Henrik Cronqvist

Chapman University - The George L. Argyros College of Business and Economics ( email )

1 University Drive
Orange, CA 92866
United States

Mitch Warachka (Contact Author)

Chapman University - The George L. Argyros College of Business and Economics ( email )

1 University Drive
Orange, CA 92866
United States

Frank Yu

China Europe International Business School ( email )

669 Hongfeng Road
Pudong
Shanghai, 201206
China

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