Social Networks and the Decision to Insure: Evidence from Randomized Experiments in China
- Alain de Janvry, Goldman School of Public Policy, University of California, Berkeley
- Jing Cai, University of California, Berkeley
- Elisabeth Sadoulet, University of California, Berkeley
- Goldman School of Public Policy Working Paper (January 2012)
Using data from a two-year 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. In the ﬁrst year, I provided ﬁnancial education to
a random subset of farmers and found a large social network eﬀect on insurance take-up: for untreated farmers, having an additional friend receiving ﬁnancial education raises take-up by almost half as much as obtaining ﬁnancial education directly, a spillover eﬀect equivalent to oﬀering a 12% reduction in the average insurance premium. By varying the information available to subjects about their peers’ take-up decisions and using randomized default options, I show that the positive social network eﬀect is not driven by scale eﬀects, imitation, or informal risk-sharing, but instead by the diﬀusion of insurance knowledge. One year later, social networks continue to aﬀect insurance demand: observing an above-median share of friends receiving payouts increases insurance take-up at a rate equivalent to about 50% of the impact of receiving payouts directly. I also ﬁnd that social network eﬀects are larger in villages where households are more strongly connected, and when the people who receive ﬁnancial education ﬁrst are more central in the social network.
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