Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies
AbstractThe 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.
CitationTownsend, Robert M. 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies." Journal of Economic Perspectives, 9 (3): 83-102. DOI: 10.1257/jep.9.3.83
- O12 Microeconomic Analyses of Economic Development