Risk Sharing and Transactions Costs: Evidence from Kenya's Mobile Money Revolution

TLDR

The study estimates how lower transaction costs from Kenya’s mobile money innovation affect risk sharing by measuring its impact on household consumption. The analysis uses the expansion of the mobile money agent network as exogenous variation, linking higher remittances and greater sender diversity to consumption outcomes. Adoption rose from 43 % to 70 %, and while shocks cut non‑user consumption by 7 %, users’ consumption remained unchanged, a result robust to multiple checks. JEL codes: E42, G22, O16, O17, Z13.

Abstract

We explore the impact of reduced transaction costs on risk sharing by estimating the effects of a mobile money innovation on consumption. In our panel sample, adoption of the innovation increased from 43 to 70 percent. We find that, while shocks reduce consumption by 7 percent for nonusers, the consumption of user households is unaffected. The mechanisms underlying these consumption effects are increases in remittances received and the diversity of senders. We report robustness checks supporting these results and use the four-fold expansion of the mobile money agent network as a source of exogenous variation in access to the innovation. (JEL E42, G22, O16, O17, Z13)