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Consumption insurance with heterogeneous preferences. Can sharecropping help complete markets ?

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  • Dubois, P.

Abstract

This paper presents the first evidence linking directly household consumption profiles to the widely studied institution of sharecropping in developing countries. On the one hand, the theoretical rationale for sharecropping often calls for its risk sharing properties. On the other hand empirical studies on risk sharing in consumption often reject full insurance but admit that some formal or informal mechanisms help households to insure substantially their consumption since income shocks do not fully transfer in consumption. Risk sharing and consumption insurance achieved by rural households from three provinces of Pakistan are studied allowing for heterogeneity of preferences and in particular in risk aversion. As full insurance is rejected, there is some scope for Pareto improving risk sharing mechanisms. Actually, markets are found to be incomplete even at the village level and evidence that the sharecropping institution helps completing markets is exposed. ...French Abstract : Cet article présente le premier test empirique liant directement les profils de consommation des ménages à l'institution tant étudiée du métayage dans les pays en développement. D'une part, la justification théorique du métayage fait souvent appel à ses propriétés de partage de risque. D'autre part, les études empiriques sur le partage de risque en consommation rejettent souvent l'assurance complète mais admettent que des mécanismes formels ou informels permettent aux ménages d'assurer substantiellement leur consommation puisque les chocs de revenu ne sont pas complètement répercutés sur la consommation. Le partage de risque atteint par des ménages ruraux de trois provinces du Pakistan est étudié tout en autorisant un certain degré d'hétérogénéité des préférences et en particulier en ce qui concerne l'aversion au risque. Comme l'assurance parfaite est rejetée, des mécanismes de partage de risque peuvent améliorer l'allocation des ressources. En effet, les marchés sont incomplets même au niveau du village et les tests empiriques montrent que le métayage permet de compléter les marchés. Les ménages capables d'utiliser ce choix contractuel, permettant de partager le risque de production, sont mieux assurés contre les chocs idiosyncratiques. Il semble que le métayage fournisse un bien contingent que les autres marchés accessibles ne permettent pas de répliquer. Ce fait empirique montre que les contrats agricoles jouent un rôle important dans le partage du risque de production. Enfin, grâce au paramètre d'aversion au risque estimé, l'argument du partage de risque dans le choix contractuel prédît par les théories standard Principal-Agent est testé directement. Les agents les plus averses au risque préfèrent les contrats de métayage au contrats de fermage et avec un taux de partage de la production plus faible lorsqu'ils sont plus averses au risque.

Suggested Citation

  • Dubois, P., 2001. "Consumption insurance with heterogeneous preferences. Can sharecropping help complete markets ?," Economics Working Paper Archive (Toulouse) 25, French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse).
  • Handle: RePEc:rea:inrawp:25
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    File URL: http://www.toulouse.inra.fr/centre/esr/wpRePEc/dub200113.pdf
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    Cited by:

    1. Sam Schulhofer-Wohl, 2011. "Heterogeneity and Tests of Risk Sharing," Journal of Political Economy, University of Chicago Press, vol. 119(5), pages 925-958.
    2. Irac, D. & Minoiu, C., 2006. "Risk Insurance in a Transition Economy: Evidence from Rural Romania," Working papers 154, Banque de France.
    3. Ethan Ligon & Pierre Dubois, 2012. "Incentives & Nutrition for Rotten Kids: The Quantity & Quality of Food Allocated within Philippine Households," 2012 Meeting Papers 375, Society for Economic Dynamics.
    4. Pierre-André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory : A Survey of Some Recent Work," Working Papers 2002-11, Center for Research in Economics and Statistics.
    5. Luis H.B. Braido, 2005. "Risk and Insurance in Sharecropping," Risk and Insurance 0508002, EconWPA.

    More about this item

    Keywords

    COMPLETE MARKETS HYPOTHESIS; CONSUMPTION SMOOTHING; HETEROGENEOUS PREFERENCES; RISK; INSURANCE; SHARECROPPING; INSTRUMENTAL VARIABLES; PAKISTAN ; THEORIE DES CONTRATS; METAYAGE; FERMAGE; PAYS EN DEVELOPPEMENT; MENAGE AGRICOLE; RISQUE; ASSURANCE; ECONOMIE DE MARCHE ; PAKISTAN;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • 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
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment

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