Risk Sharing Networks in Rural Philippines

97-014

54 Pages Posted: 27 Mar 1998

See all articles by Marcel Fafchamps

Marcel Fafchamps

Stanford University - Freeman Spogli Institute for International Studies

Susan Lund

McKinsey & Co. Inc.

Date Written: August 1997

Abstract

Using original data on gifts and loans, this paper investigates how rural Filipino households deal with income and expenditure shocks. Results indicate that gifts and informal loans are partly motivated by consumption smoothing motives but do not serve to efficiently share risk. Certain shocks are better insured through gifts and loans than others. Mutual insurance does not take place at the village level; rather, households receive help primarily through networks of friends and relatives. Network quality matters. Risk is shared through flexible, zero interest informal loans rather than gifts. The evidence is consistent with models of quasi-credit where enforcement constraints limit gift giving.

JEL Classification: O17

Suggested Citation

Fafchamps, Marcel and Lund, Susan, Risk Sharing Networks in Rural Philippines (August 1997). 97-014. Available at SSRN: https://ssrn.com/abstract=71379 or http://dx.doi.org/10.2139/ssrn.71379

Marcel Fafchamps (Contact Author)

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

Susan Lund

McKinsey & Co. Inc. ( email )

Konigsallee 60C
K-40027 Dusseldorf, Quebec
Germany

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