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  4. Summer 1995
  5. Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies

  • Robert M. Townsend
Journal of Economic Perspectives
vol. 9, no. 3, Summer 1995
(pp. 83–102)
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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.

Citation

Townsend, 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

JEL Classification

  • O12 Microeconomic Analyses of Economic Development
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