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Is Consumption Insured against Illness? Evidence on Vulnerability of Households to Health Shocks in Rural Ethiopia

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  • Asfaw, Abay
  • von Braun, Joachim

Abstract

Low and volatile incomes and absence of well-developed financial markets make consumption smoothing an important issue in low-income countries. Based on the theory of full insurance and using 2 years of panel data, this study examines the impact of illness on the consumption of rural households and the capacity of existing risk-sharing mechanisms in insuring consumption against health shocks in the rural areas of Ethiopia. The results show that illness has a statistically significant negative impact on the stability of consumption and the capacity of households or existing intra- and interhousehold risk-sharing arrangements in insuring consumption against illness varies across different consumption items. The regression results show that the hypothesis of consumption insurance cannot be rejected in the case of total food consumption, implying that basic items that come from own production and from external sources (gifts) are better insured and insensitive to the illness of the head. However, the implication of risk sharing is rejected in the case of nonfood consumption items. The restriction test results reveal that the movement of the household head from a healthy to an unhealthy status would lower the growth rate of quarterly nonfood consumption items of the household by more than 24 percentage points. This clearly demonstrates that there would be a significant amount of welfare gain if existing endogenous risk sharing arrangements can be strengthened or some kind of community health insurance scheme can be introduced in the rural areas of Ethiopia.

Suggested Citation

  • Asfaw, Abay & von Braun, Joachim, 2004. "Is Consumption Insured against Illness? Evidence on Vulnerability of Households to Health Shocks in Rural Ethiopia," Economic Development and Cultural Change, University of Chicago Press, vol. 53(1), pages 115-129, October.
  • Handle: RePEc:ucp:ecdecc:y:2004:v:53:i:1:p:115-29
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    File URL: http://dx.doi.org/10.1086/423255
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    References listed on IDEAS

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    1. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-976, October.
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    Cited by:

    1. Hirvonen, Kalle & Bossuyt, Anne & Pigois, Remy, 2017. "Complementarities between social protection and health sector policies: Evidence from the Productive Safety Net Program in Ethiopia," ESSP working papers 112, International Food Policy Research Institute (IFPRI).
    2. Krishna, Anirudh, 2007. "For Reducing Poverty Faster: Target Reasons Before People," World Development, Elsevier, vol. 35(11), pages 1947-1960, November.
    3. Adam Wagstaff & Magnus Lindelow, 2014. "Are Health Shocks Different? Evidence From A Multishock Survey In Laos," Health Economics, John Wiley & Sons, Ltd., vol. 23(6), pages 706-718, June.
    4. Daniel Ayalew Mekonnen & Daniel Ayalew Mekonnen & Nicolas Gerber & Nicolas Gerber, 2016. "Aspirations and income, food security and subjective well-being in rural Ethiopia," FOODSECURE Working papers 51, LEI Wageningen UR.
    5. Giesbert, Lena & Schindler, Kati, 2012. "Assets, Shocks, and Poverty Traps in Rural Mozambique," World Development, Elsevier, vol. 40(8), pages 1594-1609.
    6. Jacky MATHONNAT & Jean-François BRUN & Martine AUDIBERT & Marie-Claire HENRY, 2006. "Malaria, Production and Income of the Producers of Coffee and Cocoa: an Analysis from Survey Data in Côte d’Ivoire. Malaria, coffee and cocoa production and income," Working Papers 200631, CERDI.
    7. repec:eee:jhecon:v:53:y:2017:i:c:p:38-52 is not listed on IDEAS
    8. Islam, Asadul & Maitra, Pushkar, 2012. "Health shocks and consumption smoothing in rural households: Does microcredit have a role to play?," Journal of Development Economics, Elsevier, vol. 97(2), pages 232-243.
    9. Flores, Gabriela & O’Donnell, Owen, 2016. "Catastrophic medical expenditure risk," Journal of Health Economics, Elsevier, vol. 46(C), pages 1-15.
    10. Bratti, Massimiliano & Mendola, Mariapia, 2014. "Parental health and child schooling," Journal of Health Economics, Elsevier, vol. 35(C), pages 94-108.
    11. Khan, Farid & Bedi, Arjun S. & Sparrow, Robert, 2015. "Sickness and Death: Economic Consequences and Coping Strategies of the Urban Poor in Bangladesh," World Development, Elsevier, vol. 72(C), pages 255-266.
    12. Verpoorten, Marijke, 2009. "Household coping in war- and peacetime: Cattle sales in Rwanda, 1991-2001," Journal of Development Economics, Elsevier, vol. 88(1), pages 67-86, January.
    13. Hanjra, Munir A. & Ferede, Tadele & Gutta, Debel Gemechu, 2009. "Pathways to breaking the poverty trap in Ethiopia: Investments in agricultural water, education, and markets," Agricultural Water Management, Elsevier, vol. 96(11), pages 1596-1604, November.
    14. repec:eee:wdevel:v:102:y:2018:i:c:p:262-274 is not listed on IDEAS
    15. Abegunde, Dele Olawale & Stanciole, Anderson E., 2008. "The economic impact of chronic diseases: How do households respond to shocks? Evidence from Russia," Social Science & Medicine, Elsevier, vol. 66(11), pages 2296-2307, June.
    16. Woode, Maame Esi, 2017. "Parental health shocks and schooling: The impact of mutual health insurance in Rwanda," Social Science & Medicine, Elsevier, vol. 173(C), pages 35-47.
    17. Limwattananon, Supon & Neelsen, Sven & O'Donnell, Owen & Prakongsai, Phusit & Tangcharoensathien, Viroj & van Doorslaer, Eddy & Vongmongkol, Vuthiphan, 2015. "Universal coverage with supply-side reform: The impact on medical expenditure risk and utilization in Thailand," Journal of Public Economics, Elsevier, vol. 121(C), pages 79-94.

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