Social Networks and the Decision to Insure

Identifying the role of social networks on weather insurance product adoption
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This paper uses data from a randomized field experiment in China’s main rice producing areas to study the influence of social networks on weather insurance adoption and mechanisms through which social networks operate. The experiment used for the study provides financial education to a random subset of farmers. For untreated farmers, the effect of having an additional treated friend on take-up is found to be equivalent to offering a 15% reduction in the insurance premium. The paper notes 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. It also finds that social network effects are larger when people who are the first to receive financial education are more central in the social network. The paper covers the following sections in detail:

  • Potential of social networks in influencing financial decisions;
  • Experimental design, data, summary statistics, and randomization checks;
  • Estimation of the social network effect and monetary equivalence of the effect;
  • Identifying the social network effects mechanism with a focus on the role of these networks in providing knowledge of insurance and diffusing purchase decisions;
  • Heterogeneity on network characteristics;
  • Policy implications of the study.

About this Publication

By Cai, J., Janvry, A.D. , Sadoulet, E.