Insurance and propagation in village networks

Arbeitspapier

In village economies, insurance networks are key to smoothing shocks, while production networks can propagate them. The interplay of these networks is crucial. We show that a significant health expenditure shock to one household propagates to other linked households via supply-chain and labor networks. Imperfectly insured households adjust production decisionscutting input spending and reducing labor hiringaffecting households with whom they trade inputs and labor. Household businesses proximate to shocked households in the supply chain network experience reduced local sales, and those proximate in the labor network experience a lower probability of working locally. As a result, indirectly shocked households earnings and consumption fall. These declines persist over several years because networks are rigid: households appear unable to form new linkages when existing links experience negative shocks. Propagation is a function of access to insurance networks: well-insured households do not cut spending when hit by shocks, leading to minimal propagation. A simple back-of-the-envelope exercise suggests that the total magnitude of indirect effects may be larger than the direct effects and that social (village-level) gains from expanding safety nets such as health insurance may be substantially higher than private (household-level) gains.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IDB Working Paper Series ; No. IDB-WP-1155

Classification and Topics

• Classification: Wirtschaft ; Household Production and Intrahousehold Allocation ; Firm Behavior: Empirical Analysis ; Health and Economic Development ; Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
• Subject: Entrepreneurship ; Risk sharing ; Propagation ; Production networks

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kinnan, Cynthia ; Samphantharak, Krislert ; Townsend, Robert M. ; Vera Cossío, Diego Alejandro
• Event: Veröffentlichung
• (who): Inter-American Development Bank (IDB)
• (where): Washington, DC
• (when): 2020

Further information

• DOI: doi:10.18235/0001846
• Handle: http://hdl.handle.net/10419/237452
• Last update: 10.03.2025, 11:44 AM CET