Pré-Publication, Document De Travail (Working Paper) Année : 2025

Limited Commitment, Social Control and Risk-Sharing Coalitions in Village Economies *

Résumé

The need to insure against idiosyncratic income risk leads to the formation of risksharing groups in village economies where formal financial markets are absent. We develop a theoretical model to address the impact of limited commitment and social control on the extent of informal risk sharing when agents willingly form such risksharing coalitions. Social control mitigates the absence of commitment by punishing present defectors in future periods. A defection-proof core-partition exists, is unique and homophilic. Riskier societies do not necessarily pay a higher cost for insurance. A higher social control leads to a less segmented society but does not lead necessarily to a lower price for sharing risk. Using panel data on Thai villages, we provide empirical illustrations of our theoretical results that risk-sharing coalitions are homophilic, and that social control increases the likelihood, ceteris paribus, that two individuals share risk.

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halshs-05061879 , version 1 (09-05-2025)

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  • HAL Id : halshs-05061879 , version 1

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Fabien Moizeau, Hubert Kempf, Thomas Vendryes, Fernando Jaramillo, Juan Daniel Hernandez. Limited Commitment, Social Control and Risk-Sharing Coalitions in Village Economies *. 2025. ⟨halshs-05061879⟩
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