Endogenous insurance and informal relationships

نویسندگان

  • Xiao Yu Wang
  • Rachel Kranton
  • Andy Newman
  • Debraj Ray
  • Chris Walters
چکیده

Heterogeneously risk-averse individuals who lack access to formal insurance build and use relationships with each other to manage risk. I show that the composition of equilibrium relationships under pairwise matching and when group size is endogenous is determined by a mean-variance trade-o¤ across di¤erentially risky productive opportunities, though output distributions may have in…nitely-many nonzero cumulants. This has important policy implications. For example, a policy which ignores the equilibrium response of informal institutions may exacerbate inequality and hurt most those it intended to help: a reduction in aggregate risk may lead to an increase in risk borne by the most risk-averse individuals, as the least risk-averse abandon their roles as informal insurers. The theory also sheds light on the channels through which endogenous insurance relationships in‡uence informal …rm structure and entrepreneurship.

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تاریخ انتشار 2015