DP13164 Altruism and Risk Sharing in Networks
We provide the first analysis of the risk-sharing implications of altruism networks.
Agents are embedded in a fixed network and care about each other. We study whether
altruistic transfers help smooth consumption and how this depends on the shape of the
network. We identify two benchmarks where altruism networks generate efficient insurance:
for any shock when the network of perfect altruism is strongly connected and for any small
shock when the network of transfers is weakly connected. We show that the extent of
informal insurance depends on the average path length of the altruism network and that
small shocks are partially insured by endogenous risk-sharing communities. We uncover
complex structural effects. Under iid incomes, central agents tend to be better insured,
the consumption correlation between two agents is positive and tends to decrease with
network distance, and a new link can decrease or increase the consumption variance of
indirect neighbors. Overall, we show that altruism in networks has a first-order impact on
risk and generates specific patterns of consumption smoothing.