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Patrick Eozenou, 2009. "Optimal Risk Sharing Under Limited Commitment:
Evidence From Rural Vietnam"
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| Abstract: |
| We use panel data from a household survey conducted in Vietnam to analyze the effectiveness
of informal risk sharing arrangements in protecting household consumption from idiosyncratic
income shocks. We focus on the effects of reported harvest shocks and of estimated shocks to
agricultural revenues on adult equivalent consumption. The full-insurance allocation is tested
against a specified alternative under which contracts are not fully enforceable ex-post. We find
that farmers hit by unfavorable events stabilize their consumption level below the village aggregate
level, irrespective of the level of realized shocks. At the same time, farmers experiencing
more favorable shocks enjoy higher consumption in proportion to the realized value of idiosyncratic
shocks. Together, these finding are consistent with a simple 2-period model of optimal
risk sharing with one-sided limited commitment. These results hold for total consumption and
for non-durable consumption. We also find however some evidence supporting the full insurance
hypothesis for food consumption. |
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