IDEAS home Printed from https://ideas.repec.org/p/jau/wpaper/2011-05.html
   My bibliography  Save this paper

Assessing the impact of public transfers on private risk sharing arrangements: Evidence from a randomized experiment in Mexico

Author

Listed:
  • Marina Pavan

    (LEE & Universitat Jaume I and The Geary Institute, University College Dublin)

  • Aldo Colussi

    (University of Western Ontario)

Abstract

We adopt a structural approach to studying the effects of public transfers on consumption smoothing, risk sharing and welfare in small village economies. We calibrate the key parameters of a dynamic limited commitment model using data gathered as part of the Mexican Progresa program, and take advantage of the randomized experimental design of the data to validate the model using the treatment sample. The limited commitment model enriched to allow for unobserved heterogeneity in preferences can reasonably well explain consumption dynamics and cross-sectional distributions. The calibrated model correctly predicts the increase in consumption smoothing of transfers’ recipients, and the decrease in risk sharing between beneficiaries and non beneficiaries of the program. Progresa transfers are found to crowd-out between 3% and 10% of the pre-existing private transfers, but the overall direct e,ect of the subsidy on consumption is welfare improving for all households. Last, we use our structural model to evaluate a counterfactual, fully funded, insurance scheme.

Suggested Citation

  • Marina Pavan & Aldo Colussi, 2011. "Assessing the impact of public transfers on private risk sharing arrangements: Evidence from a randomized experiment in Mexico," Working Papers 2011/05, Economics Department, Universitat Jaume I, Castellón (Spain).
    • Handle: RePEc:jau:wpaper:2011/05
    as

    Download full text from publisher

    File URL: http://www.doctreballeco.uji.es/wpficheros/pavan&colussi2011.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Maurizio Mazzocco & Shiv Saini, 2012. "Testing Efficient Risk Sharing with Heterogeneous Risk Preferences," American Economic Review, American Economic Association, vol. 102(1), pages 428-468, February.
    2. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    3. Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(1), pages 163-193.
    4. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April.
    5. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 209-244.
    6. Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, vol. 69(2), pages 515-526, March.
    7. Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
    8. Cox, Donald & Hansen, Bruce E. & Jimenez, Emmanuel, 2004. "How responsive are private transfers to income? Evidence from a laissez-faire economy," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2193-2219, August.
    9. Christopher Udry, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 495-526.
    10. Cagetti, Marco, 2003. "Wealth Accumulation over the Life Cycle and Precautionary Savings," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 339-353, July.
    11. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 508-546, June.
    12. Kenneth I. Wolpin & Petra E. Todd, 2006. "Assessing the Impact of a School Subsidy Program in Mexico: Using a Social Experiment to Validate a Dynamic Behavioral Model of Child Schooling and Fertility," American Economic Review, American Economic Association, vol. 96(5), pages 1384-1417, December.
    13. Seiritsu Ogura & Toshiaki Tachibanaki & David A. Wise, 2001. "Aging Issues in the United States and Japan," NBER Books, National Bureau of Economic Research, Inc, number ogur01-1, July.
    14. Attanasio, Orazio & Rios-Rull, Jose-Victor, 2000. "Consumption smoothing in island economies: Can public insurance reduce welfare?," European Economic Review, Elsevier, vol. 44(7), pages 1225-1258, June.
    15. Skoufias, Emmanuel, 2007. "Poverty alleviation and consumption insurance: Evidence from PROGRESA in Mexico," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(4), pages 630-649, August.
    16. Pedro Albarran & Orazio P. Attanasio, 2002. "Do Public Transfers Crowd Out Private Transfers?: Evidence from a Randomized Experiment in Mexico," WIDER Working Paper Series DP2002-06, World Institute for Development Economic Research (UNU-WIDER).
    17. Angelucci, Manuela & De Giorgi, Giacomo, 2006. "Indirect Effects of an Aid Program: The Case of Progresa and Consumption," IZA Discussion Papers 1955, Institute of Labor Economics (IZA).
    18. Skoufias, Emmanuel, 2005. "PROGRESA and its impacts on the welfare of rural households in Mexico:," Research reports 139, International Food Policy Research Institute (IFPRI).
    19. Sam Schulhofer-Wohl, 2007. "Heterogeneity, Risk Sharing and the Welfare Costs of Risk," 2007 Meeting Papers 926, Society for Economic Dynamics.
    20. Pedro Albarran & Orazio P. Attanasio, 2003. "Limited Commitment and Crowding out of Private Transfers: Evidence from a Randomised Experiment," Economic Journal, Royal Economic Society, vol. 113(486), pages 77-85, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Florian Klohn & Christoph Strupat, 2013. "Crowding out of Solidarity? – Public Health Insurance versus Informal Transfer Networks in Ghana," Ruhr Economic Papers 0432, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. repec:zbw:rwirep:0432 is not listed on IDEAS
    3. Klohn, Florian & Strupat, Christoph, 2013. "Crowding out of Solidarity? – Public Health Insurance versus Informal Transfer Networks in Ghana," Ruhr Economic Papers 432, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. Strupat, Christoph & Klohn, Florian, 2018. "Crowding out of solidarity? Public health insurance versus informal transfer networks in Ghana," World Development, Elsevier, vol. 104(C), pages 212-221.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sarolta Laczo, 2010. "Estimating Dynamic Contracts: Risk Sharing in Village Economies," 2010 Meeting Papers 687, Society for Economic Dynamics.
    2. Gulesci,Selim, 2020. "Poverty Alleviation and Interhousehold Transfers : Evidence from BRAC's Graduation Program in Bangladesh," Policy Research Working Paper Series 9467, The World Bank.
    3. Melanie Morten, 2016. "Temporary Migration and Endogenous Risk Sharing in Village India," NBER Working Papers 22159, National Bureau of Economic Research, Inc.
    4. Árpád Ábrahám & Sarolta Laczó, 2018. "Efficient Risk Sharing with Limited Commitment and Storage," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1389-1424.
    5. Dercon, Stefan & Bold, Tessa, 2014. "Insurance companies of the poor," CEPR Discussion Papers 10278, C.E.P.R. Discussion Papers.
    6. Mazur, Karol, 2023. "Sharing risk to avoid tragedy: Informal insurance and irrigation in village economies," Journal of Development Economics, Elsevier, vol. 161(C).
    7. Tessa Bold, 2009. "Implications of Endogenous Group Formation for Efficient Risk‐Sharing," Economic Journal, Royal Economic Society, vol. 119(536), pages 562-591, March.
    8. Masahiro Shoji, 2018. "Incentive for risk sharing and trust formation: experimental and survey evidence from Bangladesh," Oxford Economic Papers, Oxford University Press, vol. 70(4), pages 1062-1083.
    9. Manuela Angelucci & Giacomo De Giorgi, 2009. "Indirect Effects of an Aid Program: How Do Cash Transfers Affect Ineligibles' Consumption?," American Economic Review, American Economic Association, vol. 99(1), pages 486-508, March.
    10. Pierre Dubois & Bruno Jullien & Thierry Magnac, 2008. "Formal and Informal Risk Sharing in LDCs: Theory and Empirical Evidence," Econometrica, Econometric Society, vol. 76(4), pages 679-725, July.
    11. Tom Krebs & Moritz Kuhn & Mark L. J. Wright, 2015. "Human Capital Risk, Contract Enforcement, and the Macroeconomy," American Economic Review, American Economic Association, vol. 105(11), pages 3223-3272, November.
    12. Jonathan Robinson, 2012. "Limited Insurance within the Household: Evidence from a Field Experiment in Kenya," American Economic Journal: Applied Economics, American Economic Association, vol. 4(4), pages 140-164, October.
    13. Angelucci, Manuela & De Giorgi, Giacomo & Rangel, Marcos A. & Rasul, Imran, 2010. "Family networks and school enrolment: Evidence from a randomized social experiment," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 197-221, April.
    14. Krueger, Dirk & Perri, Fabrizio, 2011. "Public versus private risk sharing," Journal of Economic Theory, Elsevier, vol. 146(3), pages 920-956, May.
    15. Grimm, Michael & Hartwig, Renate & Reitmann, Ann-Kristin & Bocoum, Fadima Yaya, 2021. "Inter-household transfers: An empirical investigation of the income-transfer relationship with novel data from Burkina Faso," World Development, Elsevier, vol. 144(C).
    16. Tobias Broer & Tessa Bold, 2015. "Risk-Sharing in Village Economies Revisited," 2015 Meeting Papers 1232, Society for Economic Dynamics.
    17. Marcos Rangel & Imran Rasul & Giacomo de Giorgi & Manuela Angelucci, 2009. "Insurance, Investment, And The Extended Family," 2009 Meeting Papers 24, Society for Economic Dynamics.
    18. Sawada, Yasuyuki & Nakata, Hiroyuki & Kotera, Tomoaki, 2017. "Self-Production, Friction, and Risk Sharing against Disasters: Evidence from a Developing Country," World Development, Elsevier, vol. 94(C), pages 27-37.
    19. Tobias Broer, 2009. "Stationary equilibrium distributions in economies with limited commitment," Economics Working Papers ECO2009/39, European University Institute.
    20. Dubois, Pierre, 2002. "Consommation, partage de risque et assurance informelle : développements théoriques et tests empiriques récents," L'Actualité Economique, Société Canadienne de Science Economique, vol. 78(1), pages 115-149, Mars.

    More about this item

    Keywords

    Risk Sharing; Limited Commitment; Crowding-out; Transfers Programs;
    All these keywords.

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jau:wpaper:2011/05. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: María Aurora Garcia Gallego (email available below). General contact details of provider: https://edirc.repec.org/data/ueujies.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.