Risk Sharing and Transactions Costs: Evidence from Kenya's Mobile Money Revolution
We explore the impact of reduced transaction costs on risk sharing by estimating the effect of mobile money on household consumption. Over a two-year period, household adoption increased from 43 to 70 percent, while the number of cash-in and cash-out agents increased four-fold. Using panel data we collected, we found that while shocks reduce per capita consumption by 7 percent for non-user households, the consumption of households with access is unaffected. The mechanism underlying this effect is an increase in remittances received, in number, size, and diversity of senders. A falsification test using data prior to the innovation supports these results.