Clan-based Risk Sharing and Formal Insurance: 1936 vs 2019 in Modern China

Abstract

This paper focuses on the role of Confucian clan in risk sharing and examines its dynamic impact on the development of the insurance sector. Strikingly, we find that Confucian clan hindered the development of the insurance sector at the initial stage of modern China while it promoted the development of the insurance sector at the current stage of modern China. Further analyses indicate three potential explanations underlying the contrasting results: the increasing risk unpredictability and severity of losses, the migration of clan members, and the influence of Western culture. The risk-sharing experience in clan groups enhances individuals’ awareness of insurance, which induces them to embrace formal insurance when clan-based risk sharing is incomplete. Our study provides valuable insights into the relation between informal risk sharing and formal insurance.

Keywords: Confucian clan; informal risk sharing; formal insurance

JEL Classification: C21; G22; G52; Z10