The role of social capital in risk-sharing: lessons from Andhra Pradesh

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 individual-level 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.