Risk Sharing in Village Economies Revisited

Abstract We quantitatively evaluate a model of insurance with limited commitment where the requirement that contracts be immune to deviations by subcoalitions makes group size endogenous, as proposed Genicot and Ray. compare model’s predictions panel data from rural Indian villages. Apart predicting realistic degree insurance, captures evidence along two new dimensions: First, largest coalition-proof groups are substantially smaller than typical Second, strong in small groups, individual consumption responds symmetrically income rises falls, while alternative models predict counterfactual asymmetry.