Social Networks and the Decision to Insure
- 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
- Goldman School of Public Policy Working Paper (August 2012)
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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