Income Smoothing and Consumption Smoothing
AbstractOne way that risk-averse households protect consumption levels is to borrow and use insurance mechanisms. Another way, common in low-income economies, is to diversify economic activities and make conservative production and employment choices. Households thus tend toward limiting exposure only to shocks that can be handled with available credit and insurance. Typically, both types of mechanisms are studied independently but much more can be learned by studying them together. First, we obtain a more complete picture of risks, costs, and insurance possibilities. Second, it opens the way to considering biases in standard tests of credit and insurance.
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Bibliographic InfoPaper provided by Harvard - Institute for International Development in its series Papers with number 512.
Length: 20 pages
Date of creation: 1995
Date of revision:
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Postal: CAER Project, Harvard Institute for International Development, 14 Story Street, Cambridge MA 02138O
Web page: http://www.hiid.harvard.edu/
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Other versions of this item:
- Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Harvard Institute of Economic Research Working Papers 1727, Harvard - Institute of Economic Research.
- D10 - Microeconomics - - Household Behavior - - - General
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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