Formal Insurance and the Dynamics of Social Capital: Experimental Evidence from Uganda

Abstract

We explore how the introduction of formal insurance affects the within-village dynamics of social capital in south-western Uganda. As a proxy for social capital, we use contributions in a public goods game. Consistent with existing evidence, our data suggest formal insurance crowds out social capital. However, and surprisingly, overall contributions to the common pot do not go down because insurance adopters reduce their contributions. Instead, social capital erodes because the uninsured, or the local poor, lower their contributions. We discuss what might explain this finding.