Abstract
Informal risk sharing within social networks and formal financial contracts both
enable households to manage risk. We find that financial contracting reduces participation in social networks. Specifically, increased crop insurance usage decreased local
religious adherence and congregation membership in agricultural communities. Our
identification utilizes the Federal Crop Insurance Reform Act of 1994 that doubled
crop insurance usage nationally within a year, although changes in usage varied across
counties. Difference-in-Difference and Spatial First Difference tests, with urban and
neighboring counties as respective control groups, confirm that households substituted
insurance for religiosity. This substitution was associated with an increase in moral
hazard.
Original language | English |
---|---|
Publication status | In preparation - 1 Jan 2020 |
Source
China Europe International Business School (CEIBS)Keywords
- Financial Contracts
- Household Risk Management
- Social Networks