Collaborative research: Informal networks and economic development

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The economics literature indicates the existence of enforcement problems in any mutual assistance arrangement. However, there is little empirical evidence on the consequences of such problems on economic development. This research will study the effects of informal networks on economic development and the effects of economic development on networks.This research project will model and quantify the role of informal networks in developing economies using two unique data sets describing household behavior across and within sub-caste groups in urban and rural India over the past three decades. Specifically, particular, the research will examine how labor-market networks shape schooling decisions in Mumbai, India where the returns to English language schooling have risen substantially due to the Indian economic reforms of the 1990's, and how rural network performance and viability, have been affected by the economic growth induced by the Indian green revolution. The research will identify (i) the extent to which networks reduce imperfections in credit, insurance and labor markets and change the dynamics of economic development; (ii) factors that break down networks thus and jeopardize social insurance; and (iii) constraints imposed by networks on economic mobility and technology adoption.This research will use sub-caste data to construct the boundaries of networks using geo-coded household and village data to better assess the spatial impacts of local events. Sub-caste data enables the identification of network effects in a much more precise way than in prior work. Sub-caste membership also permits the investigation of performance differences among networks in different markets, including labor and credit markets. The research also studies the costs of networks--- restrictions on interactions between individual members of different networks