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Managing risks: what Russian households do to smooth consumption?

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Author Info
Notten, Geranda
Neubourg, Chris de

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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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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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Related research
Keywords: Keywords: consumption smoothing poverty social risk management Russia

Find related papers by JEL classification:
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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    Other versions:
  3. Eswaran, Mukesh & Kotwal, Ashok, 1989. "Credit as insurance in agrarian economies," Journal of Development Economics, Elsevier, vol. 31(1), pages 37-53, July. [Downloadable!] (restricted)
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  6. Pierre Dubois & Bruno Jullien & Thierry Magnac, 2007. "Formal and Informal Risk Sharing in LDCs: Theory and Empirical Evidence," IZA Discussion Papers 2842, Institute for the Study of Labor (IZA). [Downloadable!]
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  7. Udry, Christopher, 1995. "Risk and Saving in Northern Nigeria," American Economic Review, American Economic Association, vol. 85(5), pages 1287-1300, December. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
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  12. Kazianga, H., 2006. "Motives for household private transfers in Burkina Faso," Journal of Development Economics, Elsevier, vol. 79(1), pages 73-117, February. [Downloadable!] (restricted)
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  13. Ligon, Ethan, 1998. "Risk Sharing and Information in Village Economics," Review of Economic Studies, Blackwell Publishing, vol. 65(4), pages 847-64, October. [Downloadable!] (restricted)
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