We develop a model in which connections between individuals serve
as social collateral to enforce informal insurance payments. We show
that: (i) The degree of insurance is governed by the expansiveness of
the network, measured with the per capita number of connections
that groups have with the rest of the community. "Two-dimensional"
networks?like real-world networks in Peruvian villages?are sufficiently
expansive to allow very good risk-sharing. (ii) In second-
arrangements, insurance is local: agents fully share shocks within,
but imperfectly between endogenously emerging risk-sharing groups.
We also discuss how endogenous social collateral affects our results.