Working Paper Series

Social Networks and the Decision to Insure

Authors

  • Alain de Janvry, Goldman School of Public Policy, University of California, Berkeley
  • Jing Cai, Corresponding author: Department of Economics, University of Michigan
  • Elisabeth Sadoulet, Department of Agricultural and Resource Economics, University of California, Berkeley

History

  • Goldman School of Public Policy Working Paper (August 2012)

Abstract

Using data from a randomized experiment in rural China, this paper studies the influence of social networks on the decision to adopt a new weather insurance product and the mechanisms through which social networks operate. We provided financial education to a random subset of farmers and found a large social network effect on take-up: for untreated farmers, having an additional friend receiving financial education raised take-up by almost half as much as obtaining financial education directly, a spillover effect equivalent to offering a 15% reduction in the average insurance premium. By varying the information available to individuals about their peers’ take-up decisions and using randomized default options, we show that the positive social network effect is not driven by the diffusion of information on purchase decisions, but instead by the diffusion of knowledge about insurance. We also find that social network effects are larger in villages where households are more strongly connected, and when people who are the first to receive financial education are more central in the social network.

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