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Income Smoothing and Consumption Smoothing

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  • Jonathan Morduch

Abstract

One way that risk-averse households protect consumption levels is to borrow and use insurance mechanisms. Another way, common in low-income economies, is to diversify economic activities and make conservative production and employment choices. Households thus tend toward limiting exposure only to shocks that can be handled with available credit and insurance. Typically, both types of mechanisms are studied independently but much more can be learned by studying them together. First, we obtain a more complete picture of risks, costs, and insurance possibilities. Second, it opens the way to considering biases in standard tests of credit and insurance.

Suggested Citation

  • Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 103-114, Summer.
  • Handle: RePEc:aea:jecper:v:9:y:1995:i:3:p:103-14
    Note: DOI: 10.1257/jep.9.3.103
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.9.3.103
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    References listed on IDEAS

    as
    1. Rosenzweig, Mark R & Stark, Oded, 1989. "Consumption Smoothing, Migration, and Marriage: Evidence from Rural India," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 905-926, August.
    2. John M. Antle, 1987. "Econometric Estimation of Producers' Risk Attitudes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(3), pages 509-522.
    3. Rosenzweig, Mark R & Binswanger, Hans P, 1993. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Economic Journal, Royal Economic Society, vol. 103(416), pages 56-78, January.
    4. Pranab K. Bardhan, 1983. "Labor-tying in a Poor Agrarian Economy: A Theoretical and Empirical Analysis," The Quarterly Journal of Economics, Oxford University Press, vol. 98(3), pages 501-514.
    5. Edgardo Moscardi & Alain de Janvry, 1977. "Attitudes Toward Risk Among Peasants: An Econometric Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(4), pages 710-716.
    6. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-926, Sept./Oct.
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    More about this item

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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