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Risk Sharing Arrangements and the Structure of Risk and Time Preference: Theory and Evidence from Village India


  • Takashi Kurosaki


This paper investigates the extent to which rural households in developing countries are able to smooth consumption. A basic model of full-information intra-village risk sharing adopted by Townsend (1994) is extended to the case where participating households have different risk and time preferences. A resulting rule of risk allocation is characterized in an intuitive way, clarifying the effects of diverse preferences. Empirical models are applied to the ICRISAT household panel data collected from rural India to test full insurance and to investigate the structure of risk and time preferences. Estimation results strongly support the heterogeneity of risk preferences and their distribution is cosistent with households' social positions in the village. In contrast, only a weak evidence is found for the hypothesis of heterogeneous time preferences.

Suggested Citation

  • Takashi Kurosaki, 1999. "Risk Sharing Arrangements and the Structure of Risk and Time Preference: Theory and Evidence from Village India," Discussion Paper Series a383, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hituec:a383

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    Cited by:

    1. Xiao Yu Wang, 2014. "Risk Sorting, Portfolio Choice, and Endogenous Informal Insurance," NBER Working Papers 20429, National Bureau of Economic Research, Inc.

    More about this item


    insurance; consumption smoothing; risk attitudes; discount rate.;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • 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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