Chapter 24. Risk Sharing Between Households

This chapter reviews the literature identifying the different roles that family and kinship networks play in sharing risk. After a brief overview of efficient risk sharing, we discuss the channels by which households pool risk and the motives for entering in binding informal arrangements. Informal risk sharing arrangements are often thought to be enforced via reciprocal repeated relationships that are not family or kin specific. Other explanations draw from behavioral psychology and evolutionary biology and emphasize the link between gene transmission, family ties, and altruism. Next, we turn to the formation of risk sharing arrangements, either as partially overlapping networks or as risk sharing groups. We find that both types of arrangements often coexist and complement each other. The nature of strategic interactions among individuals and households has been shown to affect the stability of the resulting risk sharing equilibria. We finish with a discussion of the available evidence on strategic link and group formation.