Eozenou, Patrick (2008): Optimal Risk Sharing Under Limited Commitment: Evidence From Rural Vietnam.
Download (1MB) | Preview
We use panel data from a household survey conducted in Vietnam to analyze the effectiveness of informal risk sharing arrangements in protecting household consumption from idiosyncratic income shocks. We focus on the effects of reported harvest shocks and of estimated shocks to agricultural revenues on adult equivalent consumption. The full-insurance allocation is tested against a specified alternative under which contracts are not fully enforceable ex-post. We find that farmers hit by unfavorable events stabilize their consumption level below the village aggregate level, irrespective of the level of realized shocks. At the same time, farmers experiencing more favorable shocks enjoy higher consumption in proportion to the realized value of idiosyncratic shocks. Together, these finding are consistent with a simple 2-period model of optimal risk sharing with one-sided limited commitment. These results hold for total consumption and for non-durable consumption. We also find however some evidence supporting the full insurance hypothesis for food consumption.
|Item Type:||MPRA Paper|
|Original Title:||Optimal Risk Sharing Under Limited Commitment: Evidence From Rural Vietnam|
|Keywords:||Consumption, Risk-sharing, Informal Insurance,Vietnam|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development
I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty
|Depositing User:||Patrick Eozenou|
|Date Deposited:||13. Jan 2009 07:38|
|Last Modified:||20. Feb 2013 07:42|
O.Attanasio and J.Rios Rull.Consumption smoothing in island economies: can public insurance reduce welfare? European Economic Review, 44(7), 2000.
G.E.Battese and T.J.Coelli. A model for technical inefﬁciency effects in a stochastic frontier production function for panel data.Empirical Economics, 20: 325–332, 1995.
S.Coate and M.Ravallion. Reciprocity without commitment: characterization and performance of informal insurance arrangements. Journal of Development Economics, 40: 1–24, 1993.
J.Cochrane. A simple test of consumption insurance. Journal of Political Economy, 99(5): 957–976, 1991.
S.Dercon and P.Krishnan. Risk sharing and public transfers. The Economic Journal, 113: 86–94, 2003.
B.Efron and R.J. Tibshirani. An introduction to the bootstrap. Monographs on statistics and applied probability. Chapman Hall, 1994.
M.Fafchamps. Rural Poverty, Risk, and Development. Number ISBN I84376-436-9. Elgar Publishing, December 2003.
E.Ligon, J.Thomas, and T.Worrall. Informal insurance with limited commitment: theory and evidence from village economies. Review of Economic Studies, 69(1): 209–244, 2002.
L.Ljungqvist and T.Sargent. Recursive Macroeconomic Theory, ch.9. MIT Press, Cambridge,MA,2004.
B.J.Mace. Full insurance in the presence of aggregate uncertainty. Journal of Political Economy, 99(5): 928–56, 1991.
J.Morduch. Consumption smoothing across space: testing theories of risk sharing in the icristat study region of south india.Discussion Paper 2002/55, UN-WIDER,2002.
M.Obstfeld and K.Rogoff. Foundations of International Macroeconomics, ch.6. MIT Press,Cambridge, MA, 1996.
A.Pagan. Econometric issues in the analysis of regressions with generated regressors. International Economic Review, 25(1): 221–247, 1984.
M.Ravallion and S.Chauduri. Risk and insurance in village india: comment. Econometrica, 65(1): 171–184, 1997.
R.Townsend. Risk and insurance in village India. Econometrica, 62(3): 539–591, May 1994.
H.White and E.Masset. Child poverty in vietnam: using adult equivalence scales to estimate income-poverty for different agegroups. Working Paper 77, MRPA, 2002.