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Does Finance Make Us Less Social?
Published online by Cambridge University Press: 18 July 2022
Abstract
Informal risk sharing within social networks and formal financial contracts both enable households to manage risk. We find that financial contracting reduces participation in social networks. Specifically, increased crop insurance usage decreased local religious adherence and congregation membership in agricultural communities. Our identification utilizes the Federal Crop Insurance Reform Act of 1994 that doubled crop insurance usage nationally within a year, although changes in usage varied across counties. Difference-in-difference and Spatial First Difference tests confirm that households substituted insurance for religiosity. This substitution was associated with reductions in crop diversification and crop yields, indicating an increase in moral hazard.
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- Research Article
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- © The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
We are thankful for comments and suggestions from participants at the 2020 Financial Management Association conference, 2019 Finance Down Under conference, the 2019 conference of the Association for the Study of Religion, Culture, and Economics (ASREC), and the 2018 Santiago Finance Workshop as well as Chapman University, China Europe International Business School, Erasmus University, Loyola Marymount University, Ludwig Maximilian University of Munich, Radboud University of Nijmegen, San Diego State University, Tinbergen Institute, University of Amsterdam, University of Miami, Utrecht University, and Yashar Barardehi, Jordan Barry, Hendrik Bessembinder, Barbara Bliss, Tom Chang, Lauren Cohen, Douglas Cumming, Ryan Davis, Ralf Elsas, Diego García, Mark Garmaise, Rong Hai, Rawley Heimer, Daniel Hungerman, Laurence Iannaccone, Alok Kumar, Tomislav Ladika, Spencer Martin, Frank Partnoy, Désirée-Jessica Pély, Wenlan Qian, David Reeb, Denis Sosyura, Martijn van den Assem, Utz Weitzel, Ivo Welch, Xiaoyun Yu, and Remco Zwinkels. We are especially grateful to Daniel Hungerman for his comments and data on church donations. We also thank Erik O’Donoghue at the U.S. Department of Agriculture’s Economic Research Service (ERS) for several helpful discussions regarding crop insurance, Paul Finnell at the U.S. Department of Agriculture’s National Soil Survey Center (NSSC) for assistance with the soil data, and Rich Houseal at the Church of the Nazarene Global Ministry Center for assistance with the religion data.
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