Changes in Social Network Structure in Response to Exposure to Formal Credit Markets

66 Pages Posted: 24 Sep 2018

See all articles by Abhijit V. Banerjee

Abhijit V. Banerjee

Massachusetts Institute of Technology (MIT) - Department of Economics

Arun G. Chandrasekhar

Stanford University - Department of Economics

Esther Duflo

Massachusetts Institute of Technology (MIT) - Department of Economics; Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Bureau for Research and Economic Analysis of Development (BREAD)

Matthew O. Jackson

Stanford University - Department of Economics; Santa Fe Institute; Canadian Institute for Advanced Research (CIFAR)

Date Written: September 7, 2018

Abstract

We study how the introduction of microfinance changes the networks of interactions among 16476 households in 75 Indian villages, and develop a new dynamic model of network formation to explain the empirical findings. None of the villages were exposed to microfinance by 2006, and 43 villages were through 2010. Using a two-wave panel of network data collected in 2006 and 2012, we compare changes in networks in villages exposed to microfinance relative to those not exposed. Networks exposed to microfinance experience a significantly greater loss of links --- for credit relationships as well as advice and other types of relationships --- compared to those not exposed. Microfinance not only results in decreases in relationships among those likely to get loans, but also decreases in relationships between those unlikely to get loans. These patterns are inconsistent with models of network formation in which people have opportunities to connect with whomever they wish, but are consistent with a model that emphasizes chance meetings that depend on relative efforts to socialize coupled with conditional choices of whom to connect with, as well as externalities in payoffs across relationships between pairs and triples of people.

Keywords: Social Networks, Network Change, Network Formation, Network Evolution, Microfinance, Market Exposure, Favor Exchange, Social Capital

JEL Classification: D85, D13, L14, O12, Z13

Suggested Citation

Banerjee, Abhijit V. and Chandrasekhar, Arun G. and Duflo, Esther and Jackson, Matthew O., Changes in Social Network Structure in Response to Exposure to Formal Credit Markets (September 7, 2018). Available at SSRN: https://ssrn.com/abstract=3245656 or http://dx.doi.org/10.2139/ssrn.3245656

Abhijit V. Banerjee

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-252D
Cambridge, MA 02142
United States
617-253-8855 (Phone)
617-253-6915 (Fax)

Arun G. Chandrasekhar

Stanford University - Department of Economics ( email )

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

Esther Duflo

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-544
Cambridge, MA 02139
United States
617-258-7013 (Phone)
617-253-6915 (Fax)

Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

Cambridge, MA
United States

HOME PAGE: http://www.povertyactionlab.org/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
Durham, NC 90097
United States

Matthew O. Jackson (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
1-650-723-3544 (Phone)

HOME PAGE: http://www.stanford.edu/~jacksonm

Santa Fe Institute

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Canadian Institute for Advanced Research (CIFAR) ( email )

180 Dundas Street West, Suite 1400
Toronto, Ontario
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
190
Abstract Views
798
rank
157,164
PlumX Metrics