Does Finance Make Us Less Social? (CEIBS Working Paper, No. 011/2020/FIN)

Fang Yu, Henrik Cronqvist, Mitch Warachka

Research output: Working paper

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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 languageEnglish
Publication statusIn preparation - 1 Jan 2020

Source

China Europe International Business School (CEIBS)

Keywords

  • Financial Contracts
  • Household Risk Management
  • Social Networks

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