Working Paper: CEPR ID: DP14867
Authors: Asger Andersen; Niels Johannesen; Adam Sheridan
Abstract: We combine transaction-level data from the largest retail bank in Denmark and individual-level data from government registers to study informal insurance within social networks. Accounting for transfers in cash (money transfers) and in kind (cohabitation), we estimate that family and friends jointly replace around 7 cents of the marginal dollar lost within the bottom income decile, but much less at higher income levels. We document that informal insurance covers other adverse events than income losses: expenditure shocks, family ruptures and financial distress. Parents appear to be the key providers of informal insurance with a small amount of insurance coming from siblings and virtually none from grandparents and friends. Replacement rates vary monotonically with parent economic resources.
Keywords: informal insurance; altruism; private transfers; risk sharing
JEL Codes: D1; D6; G5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income changes (D31) | informal insurance from social networks (G52) |
| adverse events (I12) | informal insurance from social networks (G52) |
| moving from median income to bottom vigintile (D31) | monthly transfers from parents (F24) |
| moving to top vigintile (Y20) | monthly transfers from parents (F24) |
| job losses (J63) | net money transfers from parents (F24) |
| expenditure shocks (E62) | money transfers from parents (F24) |
| income changes (D31) | transfers from parents (J13) |
| income changes (D31) | transfers from siblings and friends (D64) |