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Do remittances help smooth consumption during health shocks? Evidence from Jamaica

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  • Diether W. Beuermann

    (Inter-American Development Bank)

  • Inder J. Ruprah

    (Inter-American Development Bank)

  • Ricardo E. Sierra

    (Inter-American Development Bank)

Abstract

Social networks provide an important means by which individuals and households share risk. One of the mechanisms by which informal risk sharing could be achieved is through remittances. Accordingly, this paper identifies whether and how remittances facilitate consumption smoothing during health shocks in Jamaica. In addition, we identify whether remittances are subject to moral hazard by receivers, how the informal insurance provided by remittances interacts with formal health insurance, and whether there are differential effects by gender of the household head. Overall, we find that remittances offer complete insurance towards decreased consumption during health shocks and that moral hazard is weak. The role of remittances as a social insurance mechanism, however, is only relevant in the absence of private health insurance. Public formal health insurance is found to perform a poor job as a safety net that is completely offset by the social insurance provided by remittances.

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Bibliographic Info

Paper provided by Peruvian Economic Association in its series Working Papers with number 2014-12.

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Date of creation: Apr 2014
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Handle: RePEc:apc:wpaper:2014-012

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Web page: http://perueconomics.org/
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Keywords: Consumption Smoothing; Jamaica; Remittances; Health Shocks;

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  1. Anjini Kochar, 1999. "Smoothing Consumption by Smoothing Income: Hours-of-Work Responses to Idiosyncratic Agricultural Shocks in Rural India," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 50-61, February.
  2. Marcel Fafchamps & Susan Lund, 2000. "Risk-Sharing Networks in Rural Philippines," Economics Series Working Papers, University of Oxford, Department of Economics 10, University of Oxford, Department of Economics.
  3. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 209-244.
  4. Rosenzweig, Mark R. & Wolpin, Kenneth I., 1989. "Credit Market Constraints, Consumption Smoothing and the Accumulation of Durable Production Assets in Low-Income Countries: Investments in Bullocks in India," Bulletins, University of Minnesota, Economic Development Center 7487, University of Minnesota, Economic Development Center.
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  6. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, Econometric Society, vol. 62(3), pages 539-91, May.
  7. Combes, Jean-Louis & Ebeke, Christian, 2011. "Remittances and Household Consumption Instability in Developing Countries," World Development, Elsevier, Elsevier, vol. 39(7), pages 1076-1089, July.
  8. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 15-33, March.
  9. Abhijit V. Banerjee & Esther Duflo, 2007. "The Economic Lives of the Poor," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 21(1), pages 141-168, Winter.
  10. Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 495-526, July.
  11. Dean Yang & HwaJung Choi, 2005. "Are Remittances Insurance? Evidence from Rainfall Shocks in the Philippines," Working Papers, Research Seminar in International Economics, University of Michigan 535, Research Seminar in International Economics, University of Michigan.
  12. Douglas L. Miller & Anna Paulson, 2007. "Risk taking and the quality of informal insurance: gambling and remittances in Thailand," Working Paper Series, Federal Reserve Bank of Chicago WP-07-01, Federal Reserve Bank of Chicago.
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