Intervention-Driven Changes in Social Networks and their Effects on Household Outcomes

Abstract

We study how social networks change as a result of an exogenous expansion in formal financial access and show how to estimate the effects of these changes on household outcomes. We use a unique household panel dataset that contains detailed information on the network of informal financial transactions before and after a field experiment that randomized access to savings accounts in Nepal. First, we provide evidence that the exogenous intervention affected the network of informal financial transactions. Second, we propose a dynamic model of peer effects in household expenditure that accounts for changes in the network due to the intervention. We show that disregarding such changes would lead to downward-biased peer-effect estimates.