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Working Paper 313 - Altruism, Insurance, and Costly Solidarity Commitments

22-Feb-2019

Social solidarity networks have long been understood to play a central role in village economies. There can be both altruistic and self-interested drivers behind such networks' functioning (Ligon and Schechter (2012)). Although the possibility of altruism has been accommodated in some work within that literature (notably Foster and Rosenzweig (2001)), at least since Popkin (1979) and Posner (1980), the dominant framework for social scientists' understanding of transfers within social networks has rested on self-interested dynamic behavior, commonly framed as selfenforcing informal insurance contracts (Fafchamps, 1992; Coate and Ravallion, 1993; Townsend, 1994; Ambrus, Mobius, and Szeidl, 2014). In this tradition, larger networks expand one's social insurance pool, thereby stabilizing consumption, provided that income realizations are publicly observable so as to ensure enforceability of the informal insurance contract (Ambrus, Mobius, and Szeidl, 2014). A nice implication of this framework for public policy is that social networks should (at least partially) correct targeting errors in publicly observable transfer programs, as nonrecipients who have suffered adverse shocks will enforce their claims on recipients within their network to share their windfall gains (Angelucci and De Giorgi, 2009). But the altruistic motives behind some transfers disappear when social solidarity networks are understood as motivated solely by informal insurance motives.

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