The structure of risk-sharing networks

We examine the structure of risk-sharing networks in developing countries using data from the Tanzanian village of Nyakatoke. We first show that the Nyakatoke network exhibits: (1) the “small-world” phenomenon, where two households who are not themselves risk-sharing partners are separated only by a short chain of intermediaries; (2) preferential attachment, which is a network formation process where the probability of a household receiving a partner is proportional to that household’s existing number of partners; and (3) assortative mixing, as similarly connected households tend to link to each other. We then examine the implications of these features for network performance by comparing the Nyakatoke network to simulated networks with alternative structural traits. Our simulations show that the Nyakatoke network displays optimal or near-optimal performance along multiple dimensions. In particular, the Nyakatoke network has a notable ability to withstand perturbations of multiple types, a property that none of the counterfactual networks possess.