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Income Volatility, Risk-Coping Behavior and Consumption Smoothing Mechanisms in Developing Countries: A Survey

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  • Baez Javier Eduardo

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Abstract

This paper provides a review of the general concepts and infl uential fi ndings of empirical research on risk-coping behavior and consumption smoothing arrangements in rural economies of developing countries. Low-income individuals live with high levels of risk and limited access to formal fi nancial systems for credit and insurance. In general, the evidence indicates that their informal mechanisms to mitigate risk play an important role in partially protecting their consumption. However, these alternatives do not allow rural households to achieve an optimal allocation of risk across time and income cycles and are costly on equity grounds. In addition, risks that remain uninsured seem to have adverse long term welfare consequences. Public interventions can play a signifi cant role in improving the income security of rural households. In doing so, it is crucial to have a good understanding of the causes and not simply the symptoms of informal risk-coping behavior and its social welfare implications.

Suggested Citation

  • Baez Javier Eduardo, 2006. "Income Volatility, Risk-Coping Behavior and Consumption Smoothing Mechanisms in Developing Countries: A Survey," Revista Desarrollo y Sociedad, Universidad de los Andes - CEDE, August.
  • Handle: RePEc:col:000090:002834
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    File URL: http://economia.uniandes.edu.co/revistadys/Articulo58_7.pdf
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    References listed on IDEAS

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    1. Siwan Anderson & Jean-Marie Baland, 2002. "The Economics of Roscas and Intrahousehold Resource Allocation," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 963-995.
    2. 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, vol. 82(5), pages 1177-1198, December.
    3. Amin, Sajeda & Rai, Ashok S. & Topa, Giorgio, 2003. "Does microcredit reach the poor and vulnerable? Evidence from northern Bangladesh," Journal of Development Economics, Elsevier, vol. 70(1), pages 59-82, February.
    4. Ambec, Stefan & Treich, Nicolas, 2007. "Roscas as financial agreements to cope with self-control problems," Journal of Development Economics, Elsevier, vol. 82(1), pages 120-137, January.
    5. Alderman, Harold & Garcia, Marito, 1993. "Poverty, household food security, and nutrition in rural Pakistan:," Research reports 96, International Food Policy Research Institute (IFPRI).
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    Cited by:

    1. Monica Ospina, 2010. "CCT programs for consumption insurance: evidence from Colombia," Documentos de Trabajo CIEF 010612, Universidad EAFIT.
    2. Skoufias, Emmanuel & Vinha, Katja, 2012. "Climate variability and child height in rural Mexico," Economics & Human Biology, Elsevier, vol. 10(1), pages 54-73.
    3. Baez, Javier E. & de la Fuente, Alejandro & Santos, Indhira, 2010. "Do Natural Disasters Affect Human Capital? An Assessment Based on Existing Empirical Evidence," IZA Discussion Papers 5164, Institute of Labor Economics (IZA).
    4. Piti Disyatat & Chayawadee Chai-anant, 2007. "Challenges to Managing Risk and Volatility in the Emerging Market Context," Working Papers 2007-01, Monetary Policy Group, Bank of Thailand.
    5. Emmanuel Skoufias, 2012. "The Poverty and Welfare Impacts of Climate Change Quantifying the Effects, Identifying the Adaptation Strategies," World Bank Publications, The World Bank, number 9384.

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