Insurance and Investment within Family Networks

In this paper family networks affecting informal insurance and investment is being studied. Panel data from the randomized evaluation of PROGRESA in rural Mexico and the information on surnames of household heads and their spouses to identify extended families have been used. Members of an extended family: 1) share risk with each other but not with households without relatives in the village; 2) invest more in their children's human capital when hit by positive income shocks, and disinvest less when hit by negative shock, and 3) have a higher long-term increase in capital, income, and consumption than households without relatives in the village. [Working Paper No. 260]