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Risk Pooling through Transfers in Rural Ethiopia

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  • Lei Pan

Abstract

It is often assumed that transfers received from government, nongovernment organizations (NGOs), friends, and relatives help rural households to pool risk. In this article I investigate two functions of transfers in Ethiopia: risk pooling and income redistribution. Unlike most of the literature, this article investigates not only whether but also how much risk pooling is achieved. I find evidence that transfers from government/NGOs play a role in insuring covariant income shocks and evidence that transfers from both government/NGOs and friends/relatives redistribute income. However, the contributions of these transfers to risk pooling and income redistribution are economically very limited. Moreover, transfers from friends/relatives do not play a role in risk sharing. Although transfers only play a minor role in risk pooling, households in the study villages are found to be able to insure most of their idiosyncratic income shocks and part of their covariant income shocks. (c) 2009 by The University of Chicago. All rights reserved.

Suggested Citation

  • Lei Pan, 2009. "Risk Pooling through Transfers in Rural Ethiopia," Economic Development and Cultural Change, University of Chicago Press, vol. 57(4), pages 809-835, July.
  • Handle: RePEc:ucp:ecdecc:v:57:y:2009:i:4:p:809-835
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    References listed on IDEAS

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    1. Marcel Fafchamps, 2003. "Rural Poverty, Risk and Development," Books, Edward Elgar Publishing, number 3127, April.
    2. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    3. Stefan Dercon & John Hoddinott & Tassew Woldehanna, 2005. "Shocks and Consumption in 15 Ethiopian Villages, 1999--2004," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 14(4), pages 559-585, December.
    4. Martin Ravallion & Shubham Chaudhuri, 1997. "Risk and Insurance in Village India: Comment," Econometrica, Econometric Society, vol. 65(1), pages 171-184, January.
    5. Hanan G. Jacoby & Emmanuel Skoufias, 1997. "Risk, Financial Markets, and Human Capital in a Developing Country," Review of Economic Studies, Oxford University Press, vol. 64(3), pages 311-335.
    6. Kinsey, Bill & Burger, Kees & Gunning, Jan Willem, 1998. "Coping with drought in Zimbabwe: Survey evidence on responses of rural households to risk," World Development, Elsevier, vol. 26(1), pages 89-110, January.
    7. Jalan, Jyotsna & Ravallion, Martin, 1999. "Are the poor less well insured? Evidence on vulnerability to income risk in rural China," Journal of Development Economics, Elsevier, vol. 58(1), pages 61-81, February.
    8. Grimard, Franque, 1997. "Household consumption smoothing through ethnic ties: evidence from Cote d'Ivoire," Journal of Development Economics, Elsevier, vol. 53(2), pages 391-422, August.
    9. Stefan Dercon & Pramila Krishnan, 1998. "Changes in Poverty in Rural Ethiopia 1989-1995: Measurement, Robustness Tests and Decomposition," Working Papers Department of Economics ces9819, KU Leuven, Faculty of Economics and Business, Department of Economics.
    10. Travis J. Lybbert & Christopher B. Barrett & Solomon Desta & D. Layne Coppock, 2004. "Stochastic wealth dynamics and risk management among a poor population," Economic Journal, Royal Economic Society, vol. 114(498), pages 750-777, October.
    11. Fafchamps, Marcel & Gubert, Flore, 2007. "The formation of risk sharing networks," Journal of Development Economics, Elsevier, vol. 83(2), pages 326-350, July.
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    Cited by:

    1. d'Errico, Marco & Pietrelli, Rebecca & Romano, Donato, 2016. "Household resilience to food insecurity: evidence from Tanzania and Uganda," 2016 Fifth AIEAA Congress, June 16-17, 2016, Bologna, Italy 242328, Italian Association of Agricultural and Applied Economics (AIEAA).
    2. Alpaslan Akay & Peter Martinsson & Haileselassie Medhin & Stefan Trautmann, 2012. "Attitudes toward uncertainty among the poor: an experiment in rural Ethiopia," Theory and Decision, Springer, vol. 73(3), pages 453-464, September.
    3. Berloffa, Gabriella & Modena, Francesca, 2013. "Income shocks, coping strategies, and consumption smoothing: An application to Indonesian data," Journal of Asian Economics, Elsevier, vol. 24(C), pages 158-171.
    4. repec:eee:wdevel:v:104:y:2018:i:c:p:78-96 is not listed on IDEAS
    5. Baird, Timothy D. & Gray, Clark L., 2014. "Livelihood Diversification and Shifting Social Networks of Exchange: A Social Network Transition?," World Development, Elsevier, vol. 60(C), pages 14-30.

    More about this item

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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