Assessing the Impact of Public Transfers on Private Risk Sharing Arrangements. Evidence from a Randomized Experiment in Mexico
AbstractWe 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 effect 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.
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Bibliographic InfoPaper provided by Geary Institute, University College Dublin in its series Working Papers with number 200807.
Length: 32 pages
Date of creation: 27 Feb 2008
Date of revision:
Risk Sharing; Limited Commitment; Crowding-out; Transfers Programsd;
Other versions of this item:
- Marina Pavan & Aldo Colussi, 2008. "Assessing the Impact of Public Transfers on Private Risk Sharing Arrangements: Evidence from a Randomized Experiment in Mexico," 2008 Meeting Papers 743, Society for Economic Dynamics.
- 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).
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-31 (All new papers)
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