Altruism and Risk Sharing in Networks

44 Pages·2017·0.56 MB·English

Altruism and Risk Sharing in Networks
Renaud BourlŁs, Yann BramoullØ & Eduardo Perez-Richet
Aix-Marseille School of Economics & Sciences Po
September 2017
Introduction
I Informal transfers are still prevalent in our 21st century
economies.
Transfers in cash, kind, or time between individuals and
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households and which are not market transactions.
I Key stylized facts:
Quantitatively large, even in high-income countries.
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Interact with the business cycle and with public transfers.
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Flow through social networks.
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Generate (not too) ine¢ cient informal insurance.
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Introduction: quantitatively large
I In low-income countries, remittances often on par with the
formal economy.
In 2009, Lebanon: 22% of GDP; Jordan: 16%; Philippines
I
12%, Worldbank (2011).
Greater than (cid:133)nancial aid and close to foreign direct
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investment, Yang (JEP 2011).
Remarkably stable following the crisis. Between 2008 and
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2009, dropped by 5% while FDI dropped by 40%.
I Also important in high-income countries.
In France, family transfers increased from 2% of GDP before
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the crisis to 4% after, Le Monde (2014).
In the US, interhousehold transfers estimated at 1.2% of GDP
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in 2003, National Transfer Accounts (2011).
Introduction: interact with public transfers
I Large empirical evidence on crowding out.
Increase in public transfers may decrease private transfers.
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Reduces the impact of public interventions.
In a study on the Philippines, between 30% to 80% of
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crowding out for those in the lowest income quintile, Cox,
Hansen & Jimenez (JPubE 2004).
(cid:147)attempts to aid the poor could be thwarted by private
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responses, which leak bene(cid:133)ts to richer households in the form
of lighter burdens of support for less fortunate kin.(cid:148)
I Recent evidence that transfers to the poor indirectly bene(cid:133)t
socially connected households.
Angelucci & De Giorgi (AER 2009), Angelucci, De Giorgi &
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Rasul (WP 2012).
Introduction: social networks
I Expanding empirical literature studying bilateral transfers.
Dercon & De Weerdt (JDE 2006); Fafchamps & Lund (JDE
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2003); Fafchamps & Gubert (JDE 2007).
Recent work by Arun Chandrasekhar, Pascaline Dupas and
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others.
I Even in small rural communities, it is not true that everyone is
helping everyone else.
Rather, informal transfers are structured through social
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networks: close and distant relatives, friends, neighbors.
Introduction: ine¢ cient insurance
I Following Towsend (ECA 1994), large empirical literature that
tests e¢ cient insurance on consumption data.
Typically rejected at the village level. Still, does not seem too
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ine¢ cient: consumption little a⁄ected by individual shocks.
Often interpreted as a sign that informal risk-sharing works
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quite well.
I Mazzocco & Shaini (AER 2012) develop new versions of the
tests to account for preference heterogeneity.
On data on rural India, reject e¢ cient insurance at the village
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level but not at the subcaste level.
Introduction: motives
I Why do people give? Three main explanations.
Exchange: Mutually bene(cid:133)cial informal insurance contract.
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Altruism: People give to others they care about.
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Social pressure: People give because they feel obliged to.
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I Identifying the motives empirically is challenging.
Large literature following Cox (JPE 1987). Recent studies
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based on clever experiments.
Evidence that the three motives are at work, although maybe
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across di⁄erent types of ties and circumstances.
Introduction: theory
I Growing theoretical literature rationalizing these four facts.
Models of informal transfers in networks.
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I Links as social collateral, Ambrus, Mobius & Szeidl (AER
2014).
Links have values constraining how much money can (cid:135)ow
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through them.
Characterize Pareto-constrained risk-sharing arrangements.
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I Local information constraints, Ambrus, Gao & Milan (WP
2017).
How to reach these Pareto-constrained arrangements?
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Introduction: theory
I Altruism in networks, BourlŁs, BramoullØ & Perez-Richet
(ECA 2017).
Altruism (cid:224) la Becker, structured through a network.
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Characterize Nash equilibria of the game of transfers, for
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non-stochastic incomes.
I Even in the absence of risk, altruism generates informal
redistribution.
Not true under informal insurance contracts.
I
Introduction: altruism in networks
I Advances the economics of altruism.
Following Becker (JPE 1974) and Barro (JPE 1974).
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Large literature but irrealistic structures: Small groups of
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completely connected agents or linear dynasties.
I However, family ties form complex networks.
Well-known from human genealogy.
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Argued early on by Bernheim & Bagwell (JPE 1988) but had
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not been explored by economists.