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Self-Production, Friction, and Risk Sharing against Disasters: Evidence from a developing country

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  • SAWADA Yasuyuki
  • NAKATA Hiroyuki
  • KOTERA Tomoaki

Abstract

This paper uses a unique household data set collected in Vietnam to empirically test the necessary conditions for an extended version of the consumption risk-sharing hypothesis. The test explicitly incorporates self-production and uses natural disasters such as avian influenza, droughts, and floods to identify the effectiveness of market and non-market risk-sharing mechanisms. With these additional treatments, full risk sharing cannot be rejected, which suggests the presence of omitted variable bias in existing studies that reject full risk sharing. We also find that credit constraints have a significant impact, although limited commitment is not necessarily serious.

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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 11017.

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Length: 33 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:eti:dpaper:11017

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  1. Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, Econometric Society, vol. 69(2), pages 515-26, March.
  2. Pierre Dubois & Bruno Jullien & Thierry Magnac, 2008. "Formal and informal risk sharing in LDCs: theory and empirical evidence," Working Papers 25314, Institut National de la Recherche Agronomique, France.
  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. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
  5. Pramila Krishnan & Stefan Dercon, 1997. "In sickness and in health ... risk-sharing within households in rural Ethiopia," CSAE Working Paper Series 1997-12, Centre for the Study of African Economies, University of Oxford.
  6. NAKATA Hiroyuki & SAWADA Yasuyuki & TANAKA Mari, 2010. "Asking Retrospective Questions in Household Surveys: Evidence from Vietnam," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 10008, Research Institute of Economy, Trade and Industry (RIETI).
  7. Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2010. "Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam," American Economic Review, American Economic Association, vol. 100(1), pages 557-71, March.
  8. Ligon, Ethan, 1998. "Risk Sharing and Information in Village Economics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(4), pages 847-64, October.
  9. Murgai, Rinku & Winters, Paul & Sadoulet, Elisabeth & Janvry, Alain de, 2002. "Localized and incomplete mutual insurance," Journal of Development Economics, Elsevier, vol. 67(2), pages 245-274, April.
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