Informal insurance in social networks

Abstract

This paper studies bilateral insurance schemes across networks of individuals. While transfers are based on social norms, each individual must have the incentive to abide by those norms, and so we investigate the structure of self-enforcing insurance networks. Network links play two distinct and possibly conflictual roles. First, they act as conduits for transfers. Second, they act as conduits for information. These features affect the scope for insurance, as well as the severity of punishments in the event of noncompliance. Their interaction leads to a characterization of stable networks as networks which are suitably "sparse", the degree of sparseness being related to the length of the minimal cycle that connects any triple of agents. As corollaries, we find that both "thickly connected" networks (such as the complete graph) and "thinly connected" networks (such as trees) are likely to be stable, whereas intermediate degrees of connectedness jeopardize stability. Finally, we study in more detail the notion of networks as conduits for transfers, by simply assuming a punishment structure (such as autarky) that is independent of the precise architecture of the network. This allows us to isolate a bottleneck effect: the presence of certain key agents who act as bridges for several transfers. Bottlenecks are captured well in a feature of trees that we call decomposability, and we show that all decomposable networks have the same stability properties and that these are the least likely to be stable. JEL Classification Numbers: D85, D80, 012, Z13

Public trust, the law, and financial investment☆

“…7 See, for example, Kandori (1992); Greif (1994) ;Glaeser, Laibson, and Sacerdote (2002) ;Bloch, Genicot, and Ray (2005); Mobius and Szeidl (2006); Robinson and Stuart (2006) 8 We treat the fee φ as exogenous. In Section 5, however, we analyze the effect that changes in φ have on the trust that forms in the market.…”

The Formation of Partnerships in Social Networks

“…In fact, the efficient number of pairs will be formed if and only if the initial network is completely elementary, in the sense that the number of matchings does not decrease by more than one whenever a pair leaves the graph. 4 We show that there are only two perfect completely elementary graphs: the complete network and the complete bipartite network with half of the players on each side of the network.…”

“…They also appear in the Edmunds Gallai decomposition of bipartite graphs which was used by Corominas-Bosch (2004) and Polansky (2007) to characterize equilibrium strategies in a model where nodes on the same side of the market make simultaneous offers. 4 The terminology of "elementary" networks is due to Lovasz and Plummer (1986). 5 The value is computed so that the equilibrium behavior in the finite game is equal to the equilibrium behavior in the infinite game studied in the theoretical section of the paper.…”

Stable and efficient coalitional networks

“…Wang and Watts (2006) have examined the formation of buyer-seller networks when sellers can form an association of sellers to pool their customers. Bloch, Genicot and Ray (2008) have studied bilateral insurance schemes across networks of individuals. 2 Bloch and Dutta (2009) contributions toward the provision of a (pure) public good.…”

“…Criminal gangs often develop contract relationships for the provision of certain kinds of services, such as transportation, security, contract killing, and money laundering. 4 The aim of this paper is to develop a theoretical framework that allows us to study which bilateral links and coalition structures are going to emerge at equilibrium. We de…ne the notion of coalitional network to represent a network and a coalition structure, where the network speci…es the nature of the relationship each player has with her coalition members and with players outside her coalition.…”