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Risk-Sharing and Land Misallocation

Author

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  • Davide Pietrobon
  • Alessandro Ruggieri

Abstract

We study the impact of incomplete consumption risk-sharing on land misallocation in rural economies. We develop a general equilibrium model of land cultivation choices, where heterogeneous agricultural households face idiosyncratic output shocks and insure themselves by participating in a risk-sharing arrangement. Incomplete insurance distorts households' land cultivation choices, leading them away from maximizing expected incomes and resulting in land misallocation. Using the latest ICRISAT panel data from rural India, we quantify the losses attributable to limited risk-sharing. Completing insurance markets leads to output and welfare gains of 19% and 29%, respectively. Improving the functioning of consumption insurance markets can yield gains comparable to those achieved by removing distortions in factor markets.

Suggested Citation

  • Davide Pietrobon & Alessandro Ruggieri, 2026. "Risk-Sharing and Land Misallocation," Working Papers 1565, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1565
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    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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