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Assessing the Impact of Public Transfers on Private Risk Sharing Arrangements: Evidence from a Randomized Experiment in Mexico

Author

Listed:
  • Marina Pavan

    (The Geary Institute, University College Dublin)

  • Aldo Colussi

    (University of Western Ontario)

Abstract

We adopt a structural estimation approach to studying the effects of public transfers on consumption smoothing, risk sharing and welfare in small village economies. We estimate the key parameters of a dynamic limited commitment model using data gathered as part of the Mexican Progresa program, and take advantage of the randomized experimental design of the data to validate the model using the treatment sample. The limited commitment model enriched to allow for unobserved heterogeneity in preferences can reasonably well explain consumption dynamics and cross-sectional distributions. The estimated model correctly predicts the increase in consumption smoothing and risk sharing within transfers recipients, and the decrease in risk sharing between beneficiaries and non beneficiaries of the program.

Suggested Citation

  • Marina Pavan & Aldo Colussi, 2008. "Assessing the Impact of Public Transfers on Private Risk Sharing Arrangements: Evidence from a Randomized Experiment in Mexico," 2008 Meeting Papers 743, Society for Economic Dynamics.
  • Handle: RePEc:red:sed008:743
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    References listed on IDEAS

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    1. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April.
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    3. Cox, Donald & Hansen, Bruce E. & Jimenez, Emmanuel, 2004. "How responsive are private transfers to income? Evidence from a laissez-faire economy," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2193-2219, August.
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    6. Christopher Udry, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 495-526.
    7. Cagetti, Marco, 2003. "Wealth Accumulation over the Life Cycle and Precautionary Savings," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 339-353, July.
    8. Kenneth I. Wolpin & Petra E. Todd, 2006. "Assessing the Impact of a School Subsidy Program in Mexico: Using a Social Experiment to Validate a Dynamic Behavioral Model of Child Schooling and Fertility," American Economic Review, American Economic Association, vol. 96(5), pages 1384-1417, December.
    9. Skoufias, Emmanuel, 2007. "Poverty alleviation and consumption insurance: Evidence from PROGRESA in Mexico," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(4), pages 630-649, August.
    10. Pedro Albarran & Orazio P. Attanasio, 2003. "Limited Commitment and Crowding out of Private Transfers: Evidence from a Randomised Experiment," Economic Journal, Royal Economic Society, vol. 113(486), pages 77-85, March.
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    13. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 508-546, June.
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    15. Albarran, Pedro & Attanasio, Orazio P., 2002. "Do Public Transfers Crowd Out Private Transfers? Evidence from a Randomized Experiment in Mexico," WIDER Working Paper Series 006, World Institute for Development Economic Research (UNU-WIDER).
    16. Angelucci, Manuela & De Giorgi, Giacomo, 2006. "Indirect Effects of an Aid Program: The Case of Progresa and Consumption," IZA Discussion Papers 1955, Institute for the Study of Labor (IZA).
    17. Sam Schulhofer-Wohl, 2007. "Heterogeneity, Risk Sharing and the Welfare Costs of Risk," 2007 Meeting Papers 926, Society for Economic Dynamics.
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    Cited by:

    1. repec:zbw:rwirep:0432 is not listed on IDEAS
    2. Florian Klohn & Christoph Strupat, 2013. "Crowding out of Solidarity? – Public Health Insurance versus Informal Transfer Networks in Ghana," Ruhr Economic Papers 0432, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    3. Klohn, Florian & Strupat, Christoph, 2013. "Crowding out of Solidarity? – Public Health Insurance versus Informal Transfer Networks in Ghana," Ruhr Economic Papers 432, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. repec:eee:wdevel:v:104:y:2018:i:c:p:212-221 is not listed on IDEAS

    More about this item

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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