Social Networks and the Decision to Insure

Abstract

Using data from a randomized experiment in rural China, we study the influence of social networks on weather insurance adoption and the mechanisms through which they operate. To quantify network effects, the experiment provides intensive information sessions about the product to a random subset of farmers. For untreated farmers, the effect of having an additional treated friend on take-up is equivalent to granting a 13 percent reduction in the insurance premium. By varying the information available about peers’ decisions and randomizing default options, we show that the network effect is driven by the diffusion of insurance knowledge rather than purchase decisions. (JEL G22, O12, O16, P36, Q12, Q54, Z13)