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Risk-sharing networks among households in rural Ethiopia

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  • Daniel Ayalew

Abstract

We apply the set up of limited commitment model to empirically test the role of informal risk-sharing networks using panel data on informal credit transactions from rural Ethiopia. The empirical estimates provide convincing evidence for the belief that enforcement problem limits the direct role of credit transactions in risk-sharing arrangements between rural households, whether the villages are ethnically homogenous or not. We also find that households with more land have better access to the informal credit market and access is significantly improved through their participation in small group networks, But the informal credit market and the networks under consideration serve little purpose to the land poor households. These results, therefore, imply that full risk-sharing does not appear to materialize at the village level.

Suggested Citation

  • Daniel Ayalew, 2003. "Risk-sharing networks among households in rural Ethiopia," CSAE Working Paper Series 2003-04, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:2003-04
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    Cited by:

    1. Bigsten, Arne & Shimeles, Abebe, 2004. "Dynamics of Poverty in Ethiopia," WIDER Working Paper Series 039, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    Risk-sharing; Limited commitment; Informal credit; Consumption smoothing;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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