IDEAS home Printed from https://ideas.repec.org/p/bfr/banfra/154.html
   My bibliography  Save this paper

Risk Insurance in a Transition Economy: Evidence from Rural Romania

Author

Listed:
  • Irac, D.
  • Minoiu, C.

Abstract

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.

Suggested Citation

  • Irac, D. & Minoiu, C., 2006. "Risk Insurance in a Transition Economy: Evidence from Rural Romania," Working papers 154, Banque de France.
  • Handle: RePEc:bfr:banfra:154
    as

    Download full text from publisher

    File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/working-paper_154_2006.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Pierre Dubois, 2000. "Consumption Insurance with Heterogeneous Preferences. Can Sharecropping Help Complete Markets?," Econometric Society World Congress 2000 Contributed Papers 1597, Econometric Society.
    2. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
    3. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    4. 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.
    5. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 103-114, Summer.
    6. 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.
    7. Deaton, A., 1992. "Saving and Income Smoothing in Cote d'Ivoire," Papers 156, Princeton, Woodrow Wilson School - Development Studies.
    8. 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.
    9. 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.
    10. 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.
    11. Martin Ravallion & Shubham Chaudhuri, 1997. "Risk and Insurance in Village India: Comment," Econometrica, Econometric Society, vol. 65(1), pages 171-184, January.
    12. 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, June.
    13. 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.
    14. 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.
    15. 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.
    16. 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.
    17. 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.
    18. Paxson, Christina H, 1993. "Consumption and Income Seasonality in Thailand," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 39-72, February.
    19. 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, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Núria Rodríguez-Planas & Benus Jacob, 2010. "Evaluating active labor market programs in Romania," Empirical Economics, Springer, vol. 38(1), pages 65-84, February.

    More about this item

    Keywords

    Risk ; Insurance ; Consumption smoothing ; Transition economies.;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • P2 - Economic Systems - - Socialist Systems and Transition Economies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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). General contact details of provider: http://edirc.repec.org/data/bdfgvfr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.