Advanced Search
MyIDEAS: Login to save this paper or follow this series

Do the poor insure? A synthesis of the literature on risk and consumption in developing countries

Contents:

Author Info

  • Alderman, Harold
  • Paxson, Christina H
  • DEC

Abstract

How well do rural households in developing countries mitigate the income risk of the rural sector? There are several sensible reasons why households cannot fully insure consumption against income fluctuations. The well-known problems of moral hazard, information asymmetries, and deficient ability to enforce contracts may result in no or incomplete insurance markets - and certainly there is a dearth of formal insurance markets in developing countries. Yet the literature indicates that these households do mitigate risk. Alderman and Paxson survey the literature on strategies for insuring consumption against fluctuating income and examine evidence on how effective these strategies are. Strategies for risk management include crop and field diversification; a portfolio of occupations; and the strategic migration of family members. Strategies for coping with risk include those that smooth consumption over time (through saving behavior, including borrowing and lending in formal and informal markets, accumulating and selling assets, and storing goods for future consumption) and those that smooth consumption across households (through risk sharing). Alderman and Paxson focus on, and discuss the relative effectiveness, of different risk-sharing arrangements. Risk sharing arrangements may be through formal institutions (such as insurance and futures markets, and forward contracts for harvests) and informal mechanisms (including state-contingent transfers and remittances between friends and neighbors). A number of institutions may offer"disguised"insurance . For example, share tenancy, credit contracts with state-contingent repayments, and long-term labor contracts may each contain an insurance component, although none are explicitly insurance contracts. Alderman and Paxson examine the literature on these strategies. The few pieces of evidence available suggest that the effect of risk on production and investment decisions depends on how well households can cope with income risk. Poorer households, in particular, appear to forgo potential earnings to reduce risk. As such, there is a convergence of efficiency and equity issues.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1992/10/01/000009265_3961003135200/Rendered/PDF/multi0page.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1008.

as in new window
Length:
Date of creation: 31 Oct 1992
Date of revision:
Handle: RePEc:wbk:wbrwps:1008

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Inequality; Environmental Economics&Policies; Financial Intermediation; Economic Theory&Research; Health Economics&Finance;

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Binswanger, Hans P, 1981. "Attitudes toward Risk: Theoretical Implications of an Experiment in Rural India," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 91(364), pages 867-90, December.
  2. Hans Binswanger, 1980. "Attitudes toward risk: Experimental measurement in rural india," Artefactual Field Experiments, The Field Experiments Website 00009, The Field Experiments Website.
  3. Rosenzweig, Mark R & Stark, Oded, 1989. "Consumption Smoothing, Migration, and Marriage: Evidence from Rural India," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 905-26, August.
  4. Besley, Timothy, 1994. "How Do Market Failures Justify Interventions in Rural Credit Markets?," World Bank Research Observer, World Bank Group, World Bank Group, vol. 9(1), pages 27-47, January.
  5. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 195-209, April.
  6. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center, Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  7. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
  8. Richard A. Posner, 1979. "A Theory of Primitive Society with Special Reference to Law," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 7, Chicago - Center for Study of Economy and State.
  9. von Braun, Joachim & Hotchkiss, David & Immink, Maarten D. C., 1989. "Nontraditional export crops in Guatemala: effects on production, consumption, and nutrition," Research reports, International Food Policy Research Institute (IFPRI) 73, International Food Policy Research Institute (IFPRI).
  10. Skinner, Jonathan, 1991. "Prospects for Agricultural Land Taxation in Developing Countries," World Bank Economic Review, World Bank Group, World Bank Group, vol. 5(3), pages 493-511, September.
  11. Banerjee, Abhijit V & Newman, Andrew F, 1991. "Risk-Bearing and the Theory of Income Distribution," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 211-35, April.
  12. Rosenzweig, Mark R, 1988. "Risk, Implicit Contracts and the Family in Rural Areas of Low-income Countries," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 98(393), pages 1148-70, December.
  13. Reardon, Thomas & Matlon, Peter & Delgado, Christopher, 1988. "Coping with household-level food insecurity in drought-affected areas of Burkina Faso," World Development, Elsevier, Elsevier, vol. 16(9), pages 1065-1074, September.
  14. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 928-56, October.
  15. Ravallion, Martin & Dearden, Lorraine, 1988. "Social Security in a "Moral Economy": An Empirical Analysis for Java," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 36-44, February.
  16. Webb, Patrick & von Braun, Joachim & Yohannes, Yisehac, 1992. "Famine in Ethiopia: policy implications of coping failure at national and household levels," Research reports, International Food Policy Research Institute (IFPRI) 92, International Food Policy Research Institute (IFPRI).
  17. Fumio Hayashi & Joseph Altonji & Laurence Kotlikoff, 1991. "Risk-Sharing, Altruism, and the Factor Structure of Consumption," NBER Working Papers 3834, National Bureau of Economic Research, Inc.
  18. Bhalla, Surjit S, 1979. "Measurement Errors and the Permanent Income Hypothesis: Evidence from Rural India," American Economic Review, American Economic Association, American Economic Association, vol. 69(3), pages 295-307, June.
  19. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(6), pages 1063-93, Nov.-Dec..
  20. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, Econometric Society, vol. 58(1), pages 53-73, January.
  21. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 957-76, October.
  22. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(3), pages 508-46, June.
  23. Eswaran, Mukesh & Kotwal, Ashok, 1989. "Credit as insurance in agrarian economies," Journal of Development Economics, Elsevier, Elsevier, vol. 31(1), pages 37-53, July.
  24. Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," World Bank Economic Review, World Bank Group, World Bank Group, vol. 4(3), pages 251-69, September.
  25. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(2), pages 275-98, May.
  26. Eswaran, Mukesh & Kotwal, Ashok, 1990. "Implications of Credit Constraints for Risk Behaviour in Less Developed Economies," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 473-82, April.
  27. Feder, Gershon & Just, Richard E & Zilberman, David, 1985. "Adoption of Agricultural Innovations in Developing Countries: A Survey," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 255-98, January.
  28. Heston, Alan & Kumar, Dharma, 1983. "The persistence of land fragmentation in peasant agriculture: An analysis of South Asian cases," Explorations in Economic History, Elsevier, Elsevier, vol. 20(2), pages 199-220, April.
  29. Deaton, A., 1992. "Saving and Income Smoothing in Cote d'Ivoire," Papers, Princeton, Woodrow Wilson School - Development Studies 156, Princeton, Woodrow Wilson School - Development Studies.
  30. Cox, Donald & Jimenez, Emmanuel, 1990. "Achieving Social Objectives through Private Transfers: A Review," World Bank Research Observer, World Bank Group, World Bank Group, vol. 5(2), pages 205-18, July.
  31. Deaton, A., 1991. "Household Saving in LDC'S: Credit Markets, Insurance, And Welfare," Papers, Princeton, Woodrow Wilson School - Development Studies 153, Princeton, Woodrow Wilson School - Development Studies.
  32. Grisley, William & Kellog, Earl, 1987. "Risk-taking preferences of farmers in northern Thailand: Measurements and implications," Agricultural Economics, Blackwell, Blackwell, vol. 1(2), pages 127-142, June.
  33. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, American Economic Association, vol. 82(5), pages 1177-98, December.
  34. Udry, C., 1991. "A Competitive Analysis of Rural Credit : State-Contingent Loans in Northern Nigeria," Papers, Yale - Economic Growth Center 630, Yale - Economic Growth Center.
  35. Hoff, Karla, 1991. "Land Taxes, Output Taxes, and Sharecropping: Was Henry George Right?," World Bank Economic Review, World Bank Group, World Bank Group, vol. 5(1), pages 93-111, January.
  36. Grisley, William & Kellog, Earl, 1987. "Risk-Taking Preferences of Farmers in Northern Thailand: Measurements and Implications," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 1(2), June.
  37. Vijverberg, P.M., 1992. "Measuring Income from Family Enterprises with Household Surveys," Papers, World Bank - Living Standards Measurement 84, World Bank - Living Standards Measurement.
  38. Alderman, Harold & Garcia, Marito, 1993. "Poverty, household food security, and nutrition in rural Pakistan:," Research reports, International Food Policy Research Institute (IFPRI) 96, International Food Policy Research Institute (IFPRI).
  39. Gersovitz, Mark, 1988. "Saving and development," Handbook of Development Economics, Elsevier, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 10, pages 381-424 Elsevier.
  40. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 15-33, March.
  41. Christopher D. Carroll, 1991. "Buffer stock saving and the permanent income hypothesis," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 114, Board of Governors of the Federal Reserve System (U.S.).
  42. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(5), pages 901-18, October.
  43. Machina, Mark J, 1987. "Choice under Uncertainty: Problems Solved and Unsolved," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 1(1), pages 121-54, Summer.
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 in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1008. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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