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Managing risks: what Russian households do to smooth consumption?

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  • Notten, Geranda
  • Neubourg, Chris de

Abstract

The increasing availability of rich (panel) data provides many opportunities to test theories on consumption smoothing behaviour. At the same time, the informational requirements in terms of data and modelling are high and very context specific, thus requiring a filtering of essential explanatory ingredients. In this paper we show how conceptual and exploratory empirical analysis can contribute to this filtering process. We develop a conceptual framework to analyze possible smoothing arrangements of households distinguishing between various smoothing mechanisms, institutional smoothing partners and required assets. Subsequently, we apply this framework to Russian survey data to explore how Russian households may smooth consumption. We select and analyze a broad set of indicators from household survey data to study what actions Russian households take and how these actions reflect the existence and prevalence of particular smoothing channels. The results can be used to formulate hypotheses on household smoothing behaviour and to delineate the features of a more rigorous analysis. The picture that emerges is one in which financial markets play a limited role as a smoothing channel in Russia, regardless of the smoothing mechanism used (saving, lending, insurance). Instead, households seem to use internal strategies, their family, social networks and the state to smooth consumption through capital accumulation, gift giving, the provision of loans and (pension) benefits. Furthermore, we find some evidence that old age pensions may be used for intergenerational risk-sharing within families while other findings point towards the use of household food production as an income smoothing strategy as opposed to a shock-response strategy.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4670.

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Date of creation: Aug 2007
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Handle: RePEc:pra:mprapa:4670

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Keywords: Keywords: consumption smoothing; poverty; social risk management; Russia;

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References

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  1. Mark C. Foley & William Pyle, 2005. "Household Savings in Russia during the Transition," Middlebury College Working Paper Series 0522, Middlebury College, Department of Economics.
  2. Dercon, Stefan, 1998. "Wealth, risk and activity choice: cattle in Western Tanzania," Journal of Development Economics, Elsevier, vol. 55(1), pages 1-42, February.
  3. Frederic Zimmerman & MICHAEL R. CARTER, . "Asset Smoothing, Consumption Smoothing and the Reproduction for Inequality under Risk and Subsistence Constraints," Wisconsin-Madison Agricultural and Applied Economics Staff Papers 402, Wisconsin-Madison Agricultural and Applied Economics Department.
  4. Kochar, Anjini, 2004. "Ill-health, savings and portfolio choices in developing economies," Journal of Development Economics, Elsevier, vol. 73(1), pages 257-285, February.
  5. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 103-114, Summer.
  6. Harounan Kaziango, 2004. "Motives for Household Private Transfers in Burkina Faso," Working Papers 895, Economic Growth Center, Yale University.
  7. Lokshin, Michael M. & Yemtsov, Ruslan, 2001. "Household strategies for coping with poverty and social exclusion in post-crisis Russia," Policy Research Working Paper Series 2556, The World Bank.
  8. Reuben Gronau, 2006. "Home Production and the Macro Economy-Some Lessons from Pollak and Wachter and from Transition Russia," NBER Working Papers 12287, National Bureau of Economic Research, Inc.
  9. McKenzie, David J., 2003. "How do Households Cope with Aggregate Shocks? Evidence from the Mexican Peso Crisis," World Development, Elsevier, vol. 31(7), pages 1179-1199, July.
  10. Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 495-526, July.
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  12. Alessandra Guariglia & Byung-Yeon Kim, 2003. "Wage arrears uncertainty and precautionary saving in Russia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(3), pages 493-512, 09.
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  15. Eswaran, Mukesh & Kotwal, Ashok, 1989. "Credit as insurance in agrarian economies," Journal of Development Economics, Elsevier, vol. 31(1), pages 37-53, July.
  16. Ligon, Ethan, 1998. "Risk Sharing and Information in Village Economics," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 847-64, October.
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Cited by:
  1. Maksim Yemelyanau, 2009. "Second agriculture in Belarus and Ukraine:subsistence or leisure?," BEROC Working Paper Series 08, Belarusian Economic Research and Outreach Center (BEROC).
  2. Notten, Geranda & de Crombrugghe, Denis, 2006. "Poverty risk and consumption smoothing abilities in Russia," MPRA Paper 5314, University Library of Munich, Germany, revised 27 Jul 2007.

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