Document Type

Article

Publication Date

7-18-2022

Abstract

Informal risk sharing within social networks and formal financial contracts both enable households to manage risk. We find that financial contracting reduces participation in social networks. Specifically, increased crop insurance usage decreased local religious adherence and congregation membership in agricultural communities. Our identification utilizes the Federal Crop Insurance Reform Act of 1994 that doubled crop insurance usage nationally within a year, although changes in usage varied across counties. Difference-in-difference and Spatial First Difference tests confirm that households substituted insurance for religiosity. This substitution was associated with reductions in crop diversification and crop yields, indicating an increase in moral hazard.

Comments

This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Journal of Financial and Quantitative Analysis in 2022 following peer review. This article may not exactly replicate the final published version. The definitive publisher-authenticated version is available online at http://doi.org/10.1017/S0022109022000722.

Peer Reviewed

1

Copyright

The authors

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