Working Paper: CEPR ID: DP13164
Authors: Eduardo Perez-Richet; Yann Bramoulle; Renaud Bourles
Abstract: We provide the first analysis of the risk-sharing implications of altruism networks.Agents are embedded in a fixed network and care about each other. We study whetheraltruistic transfers help smooth consumption and how this depends on the shape of thenetwork. We identify two benchmarks where altruism networks generate efficient insurance:for any shock when the network of perfect altruism is strongly connected and for any smallshock when the network of transfers is weakly connected. We show that the extent ofinformal insurance depends on the average path length of the altruism network and thatsmall shocks are partially insured by endogenous risk-sharing communities. We uncovercomplex structural effects. Under iid incomes, central agents tend to be better insured,the consumption correlation between two agents is positive and tends to decrease withnetwork distance, and a new link can decrease or increase the consumption variance ofindirect neighbors. Overall, we show that altruism in networks has a first-order impact onrisk and generates specific patterns of consumption smoothing.
Keywords: Altruism; Networks; Risk Sharing; Informal Insurance
JEL Codes: D85; D91; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| altruism in networks (D85) | consumption variability (D11) |
| altruistic transfers (D64) | consumption smoothing (D15) |
| strongly connected altruism network (D64) | insurance against any shocks (G52) |
| weakly connected altruism network (D85) | insurance for small shocks (G52) |
| average path length of altruism network (D64) | extent of informal insurance (G52) |
| centrality in the network (D85) | consumption variance (E20) |
| adding a new link (Y60) | consumption variance of indirect neighbors (R22) |