Informal insurance, public transfers and consumption smoothing
In developing countries, public programs in the form of food aid distribution are often meant to protect vulnerable households from consumption downturns by providing a safety net. Few studies have evaluated the impact of these programs. Furthermore, households often use a variety of informal mechanisms to cope with risk. We look into the extent to which food aid helps to smooth consumption by reducing the impact of negative shocks, controlling for program placement effects and informal risk-sharing. Using panel data from Ethiopia, we find that despite poor targeting, the programs reduce some of the vulnerability to common shocks via intra-village risk sharing.
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