Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies
- 1 August 1995
- journal article
- Published by American Economic Association in Journal of Economic Perspectives
- Vol. 9 (3) , 83-102
- https://doi.org/10.1257/jep.9.3.83
Abstract
The hypothesis of full risk sharing can be taken to data from low-income countries and evaluate formal and informal financial systems. In many contexts, idiosyncratic risks are high, so credit/insurance arrangements could be beneficial. Statistical tests reveal that households in southern India take advantage of these possibilities; villages in Cote d'Ivoire and countries in Thailand do not do as well. The paper includes an empirical description of the devices used to smooth consumption and a theoretical discussion of private information and incentives on ideal operating systems. The full information and mechanism design frameworks provide benchmarks for policy analysis.Keywords
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