Risk Pooling between Households and Risk-Coping Measures in Developing Countries: Evidence from Rural Bangladesh

Using data from rural Bangladesh, I test whether income risks are pooled among villagers, between neighboring households, and between related households living in different villages. I find evidence that risks to food consumption are pooled between neighboring households and between related households but not among villagers. As for nonfood consumption, I find little evidence of risk pooling except between unrelated neighboring households. I also find that, while households belonging to a neighborhood network do not take any special measures during an economic hardship, those not belonging to any such network try to smooth consumption by selling off livestock and other assets and by getting interest-free loans. Negative income shocks are found to have little effect on labor supply or private transfers.