Propagation and Insurance in Village Networks

100 Pages Posted: 16 Nov 2020 Last revised: 11 Jul 2022

See all articles by Cynthia Kinnan

Cynthia Kinnan

Northwestern University - Department of Economics

Krislert Samphantharak

University of California, San Diego - School of Global Policy and Strategy

Robert M. Townsend

Massachusetts Institute of Technology (MIT)

Diego Vera Cossio

Inter-American Development Bank

Date Written: November 2020

Abstract

In village economies, small firm owners facing idiosyncratic shocks adjust production by cutting spending and reducing employment. House-holds with whom they trade inputs and labor scale back their own businesses and reduce consumption. As effects reverberate through local economies, the aggregate indirect adverse effects are larger than the direct effects. Propagation is more severe when transmitted through labor networks as opposed to material supply-chain networks, and goes beyond input-output/sectoral considerations as it varies with network position, closeness to a shocked household, and network density. Participation in gift-giving insurance networks mitigates direct and hence indirect effects. Supply chain and labor networks are fragile as the broken links are not easily replaced, leading to persistent damage. Social gains from better-targeted safety nets are substantially higher than private gains.

Suggested Citation

Kinnan, Cynthia and Samphantharak, Krislert and Townsend, Robert M. and Vera Cossio, Diego, Propagation and Insurance in Village Networks (November 2020). NBER Working Paper No. w28089, Available at SSRN: https://ssrn.com/abstract=3731258

Cynthia Kinnan (Contact Author)

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

Krislert Samphantharak

University of California, San Diego - School of Global Policy and Strategy ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States
858-534-3939 (Fax)

Robert M. Townsend

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Diego Vera Cossio

Inter-American Development Bank

1300 New York Ave NW
Washington, DC 20577
United States

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