Risk Insurance in a Transition Economy: Evidence from Rural Romania
We test the hypothesis of Pareto optimal risk-sharing in a transition economy using a new dataset on a representative sample of 364 rural households from Romania. We identify income shocks as instances of adverse weather, crop and animal diseases, as well as illness and unemployment spells. Despite limited participation of Romanian rural households in formal insurance and credit markets, we fail to reject the hypothesis of full insurance of total non-durable consumption and its components. Survey responses indicate that the main channels of consumption smoothing are self-insurance (for adverse weather, crop and animal diseases), public transfers (for unemployment spells), and to a lesser extent, family ties. We find that adverse weather is associated with higher growth rates of non-food expenditures. Furthermore, richer households are better able to cope with crop failure than poorer households. An alternative explanation to our not rejecting the hypothesis of full insurance is that some shocks to consumption (e.g., illness) play the role of preference shifters of the utility function.
|Date of creation:||2006|
|Contact details of provider:|| Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS|
Web page: http://www.banque-france.fr/
More information through EDIRC
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.:
- 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.
- Kaivan Munshi & Mark Rosenzweig, 2005. "Economic development and the decline of rural and urban community-based networks," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(3), pages 427-443, 07.
- Marcel Fafchamps & Susan Lund, "undated".
"Risk Sharing Networks in Rural Philippines,"
97014, Stanford University, Department of Economics.
- 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.
- Alessandra Guariglia & Byung-Yeon Kim, 2004. "Earnings uncertainty, precautionary saving, and moonlighting in Russia," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(2), pages 289-310, 06.
- Jonathan Morduch, 1995.
"Income Smoothing and Consumption Smoothing,"
Journal of Economic Perspectives,
American Economic Association, vol. 9(3), pages 103-114, Summer.
- Morduch, J., 1995. "Income Smoothing and Consumption Smoothing," Papers 512, Harvard - Institute for International Development.
- Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Harvard Institute of Economic Research Working Papers 1727, Harvard - Institute of Economic Research.
- Robert M. Townsend, "undated".
"Risk and Insurance in Village India,"
University of Chicago - Population Research Center
91-3a, Chicago - Population Research Center.
- Paxson, C.H., 1991.
"Consumption And Income Seasonality In Thailand,"
150, Princeton, Woodrow Wilson School - Development Studies.
- Deaton, A., 1992. "Saving and Income Smoothing in Cote d'Ivoire," Papers 156, Princeton, Woodrow Wilson School - Development Studies.
- Stillman, Steven, 2001.
"The Response of Consumption in Russian Households to Economic Shocks,"
IZA Discussion Papers
411, Institute for the Study of Labor (IZA).
- Steven Stillman, 2001. "The Response of Consumption in Russian Households to Economic Shocks," William Davidson Institute Working Papers Series 412, William Davidson Institute at the University of Michigan.
- Robert M. Townsend, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer.
- Martin Ravallion & Shubham Chaudhuri, 1997. "Risk and Insurance in Village India: Comment," Econometrica, Econometric Society, vol. 65(1), pages 171-184, January.
- Masao Ogaki & Qiang Zhang, 2000. "Risk Sharing in Village India: the Rule of Decreasing Relative Risk Aversion," Working Papers 00-02, Ohio State University, Department of Economics.
- Pierre Dubois, 2000.
"Consumption Insurance with Heterogeneous Preferences. Can Sharecropping Help Complete Markets?,"
Econometric Society World Congress 2000 Contributed Papers
1597, Econometric Society.
- Dubois, P., 2001. "Consumption insurance with heterogeneous preferences. Can sharecropping help complete markets ?," Economics Working Paper Archive (Toulouse) 25, French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse).
- Chaves, R.A. & Sanchez, S. & Schor, S. & Tesliuc, E., 2001. "Financial Markets, Credit Constraints, and Investment in Rural Romania," Papers 499, World Bank - Technical Papers.
- Sahn, David E & Younger, Stephen D & Simler, Kenneth R, 2000. "Dominance Testing of Transfers in Romania," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 46(3), pages 309-327, September.
- Emmanuel Skoufias, 2003. "Consumption smoothing in Russia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(1), pages 67-91, March.
- 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.
- Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-956, October.
When requesting a correction, please mention this item's handle: RePEc:bfr:banfra:154. 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: (Michael brassart)
If references are entirely missing, you can add them using this form.