Propagation and Insurance in Village Networks
In village economies, small firm owners facing idiosyncratic shocks adjust production by cutting spending and reducing employment. Households with whom they trade inputs and labor scale back their own businesses and reduce consumption. As effects reverberate through local economies, the aggregate indirect adverse effects are larger than the direct effects. Propagation is more severe when transmitted through labor networks as opposed to material supply-chain networks, and goes beyond input-output/sectoral considerations as it varies with network position, closeness to a shocked household, and network density. Participation in gift-giving insurance networks mitigates direct and hence indirect effects. Supply chain and labor networks are fragile as the broken links are not easily replaced, leading to persistent damage. Social gains from better-targeted safety nets are substantially higher than private gains.
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| Language: | English |
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Inter-American Development Bank
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| Subjects: | Entrepreneurship, Labor, Health, Integrity Risk, Health Expenditure, Firms Dynamics, Insurance, Economy, Small Business, Population Aging, Housing Market, Housing, Supply Chain, D13 - Household Production and Intrahousehold Allocation, D22 - Firm Behavior: Empirical Analysis, I15 - Health and Economic Development, Q12 - Micro Analysis of Farm Firms Farm Households and Farm Input Markets, Risk sharing;Propagation;Production networks;Firms, |
| Online Access: | http://dx.doi.org/10.18235/0004385 https://publications.iadb.org/en/propagation-and-insurance-village-networks |
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