Vulnerability and Responses to Risks in Rural India
AbstractUsing ARIS/REDS data set for 2006 for rural India this paper models household vulnerability as expected utility and its components. We conclude, first, that between the years 1999 and 2006 household vulnerability is most explained by poverty and idiosyncratic components. Second, for risk coping strategy, households rely heavily on informal instrument such as their own saving, transfers or capital depletion. However, they also try to cope with covariate risks by participating in government programmes. Third, household consumption is highly covariate with income. This implies that existing informal insurance instruments are not sufficient to protect household consumption against income shocks. Fourth, a coping strategy using government programmes has vulnerability (idiosyncratic risk component) reducing effects. Finally, there is a strong case for the establishment of strong safety nets in Indian villages. The existing informal strategy is inadequate as a consumption insurance mechanism whereas government programmes are found to reduce vulnerability induced by idiosyncratic shocks. However, access to such programmes is highly constrained. The expansion of suitably designed government programs has the potential of protecting households efficiently from negative shocks.
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Bibliographic InfoPaper provided by The Australian National University, Australia South Asia Research Centre in its series ASARC Working Papers with number 2013-12.
Date of creation: 2013
Date of revision:
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Vulnerability as Expected Utility; Coping Strategy; Economic Growth; Social Safety nets;
Other versions of this item:
- Raghbendra Jha & Woojin Kang & Hari K. Nagarajan & Kailash C. Pradhan, 2012. "Vulnerability and Responses to Risk in Rural India," ASARC Working Papers 2012-05, The Australian National University, Australia South Asia Research Centre.
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D18 - Microeconomics - - Household Behavior - - - Consumer Protection
- I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
- I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-25 (All new papers)
- NEP-DEV-2013-10-25 (Development)
- NEP-UPT-2013-10-25 (Utility Models & Prospect Theory)
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