The Role of Social Capital in Risk-Sharing

Abstract

This article evaluates the role of social capital as a risk-coping device in India's Andhra Pradesh state. Focusing on children's nutritional outcomes, we test whether social capital serves as an informal insurance mechanism and helps households minimize the negative effect of shocks. We examine the impact of two kinds of income shocks, idiosyncratic and covariant, and the potentially risk-mitigating role of two types of social capital, structural and cognitive, measured first at the individual and second at the community level. The econometric methods we employ include fixed effects, random effects, and a Hausman-Taylor specification. We find that individuallevel structural and community-level cognitive social capital significantly mitigate the negative effect of idiosyncratic shocks, suggesting that persons with stronger social networks and/or living in more closely-knit communities are better informally insured against individual income shocks. On the other hand, community-level structural social capital appears to fulfil a similar role in the aftermath of covariant shocks. The underlying rationale might be that communities with more social organization are better able to negotiate with public authorities to receive help after community-wide disasters. We conclude by considering the findings within the local context of Andhra Pradesh and drawing relevant policy recommendations.

Harnessing Social Capital for Resilience to Livelihood Shocks: Ethnographic Evidence of Indigenous Mutual Support Practices among Rural Households in Eastern Ethiopia

“…In addition, traditional values and religious beliefs underpin these practices, placing a strong cultural obligation and sanctions on community members to promote cooperation and collective action, build solidarity, and support vulnerable households to cope with shocks. Several studies [12][13][14][15][16] acknowledge the promotive and protective functions of informal mutual support arrangements: before or ex ante, during, and after crisis or ex post situations or shocks. Communities forming such arrangements tend to exhibit better recovery from shocks [16] and need public emergency assistance less urgently than those communities without such arrangements [17].…”

“…Several studies [12][13][14][15][16] acknowledge the promotive and protective functions of informal mutual support arrangements: before or ex ante, during, and after crisis or ex post situations or shocks. Communities forming such arrangements tend to exhibit better recovery from shocks [16] and need public emergency assistance less urgently than those communities without such arrangements [17]. Nonetheless, studies on resilience, disaster management policy, and practices have yet to fully embrace indigenous mutual support arrangements as a vital component in addressing vulnerability [18][19][20][21][22] against livelihood shocks.…”

The Effects of Local-Level Economic Inequality on Social Capital: Evidence from Andhra Pradesh, India

“…The proportion of population affected by disaster was chosen as an instrument for communal economic inequality because when larger numbers of households in a community are affected by disasters, inequality is likely to be higher given the ability of more affluent households to better cushion the disasters’ negative economic impact—on both consumption and wealth—with existing assets. Empirical support for the relationship can be found in studies such as Petrikova and Chadha ( 2013 ) and Howell and Elliott ( 2018 ). The instrumental variable is based on an estimate of the proportion of households within a community affected by natural disaster in the four years prior to the survey, made by 3–4 community representatives in each village and averaged.…”

“…5 Regardless, social networks, particularly women’s associations, have played an important political role in the state (Niranjana 2002 ). Several empirical studies have also found positive links between social capital and desirable development outcomes in Andhra Pradesh (Galab et al 2006 ; Moestue et al 2007 ; Petrikova and Chadha 2013 ). Investigating how changing levels of community-level inequality in the state affect households’ social capital is thus policy-relevant beyond its theoretical contribution.…”

“…Similarly, Hickey ( 2010 ) concluded that bridging social capital contributed to poverty reduction in countries ranging from Argentina through Bangladesh and South Africa to Tanzania. Other positive effects of social capital, mostly of the bridging kind, detected have included better public health (Kawachi et al 1997 ), lower violent crime rates (Kennedy et al 1998 ), higher inclusion in social programmes (Petrikova 2020 ), and better nutrition (Petrikova and Chadha 2013 ) and mental-health (Tuan et al 2006 ) outcomes amongst children.…”