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Vulnerability and Responses to Risk in Rural India

ASARC Working Paper No. 2012/05

19 Pages Posted: 12 Jun 2012  

Raghbendra Jha

Australian National University (ANU) - Australia South Asia Research Centre (ASARC); Crawford School of Public Policy

Woojin Kang

Korea Development Institute (KDI)

Hari K. Nagarajan

National Council of Applied Economic Research (NCAER)

Kailash C. Pradhan

National Council of Applied Economic Research (NCAER)

Date Written: 2011

Abstract

Using Vulnerability as Expected Utility (VEU) analysis that permits the decomposition of household vulnerability into its components on a unique data set this paper demonstrates that in rural India household vulnerability is most explained by poverty and idiosyncratic components. So far as risk coping strategies go households rely heavily on informal instruments such as their own saving, transfers or capital depletion. However, they also try to cope with covariate risks by participating in government programmes. Further, household consumption is highly covariate with income. This implies that existing informal insurance instruments are not sufficient to protect household consumption against income shocks. Government sponsored coping strategies reduce the idiosyncratic and risk component of vulnerability. Hence, an important policy implication of our analysis is that the government should provide readily accessible and well targeted public safety nets. The existing informal strategy is not very effective as a consumption insurance mechanism. Although the government coping programme is found to reduce vulnerability access to such programmes is constrained. Expansion of government sponsored coping programmes is likely to protect households effectively from negative shocks.

Keywords: Vulnerability, Poverty, Covariate and Idiosyncratic shocks, REDS data, India

JEL Classification: C23, C25, C31, I32

Suggested Citation

Jha, Raghbendra and Kang, Woojin and Nagarajan, Hari K. and Pradhan, Kailash C., Vulnerability and Responses to Risk in Rural India (2011). ASARC Working Paper No. 2012/05. Available at SSRN: https://ssrn.com/abstract=2083379 or http://dx.doi.org/10.2139/ssrn.2083379

Raghbendra Jha (Contact Author)

Australian National University (ANU) - Australia South Asia Research Centre (ASARC) ( email )

Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 2683 (Phone)
+61 2 6125 0443 (Fax)

HOME PAGE: http://crawford.anu.edu.au/crawford_people/content/staff/acde/rjha.php

Crawford School of Public Policy

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Woojin Kang

Korea Development Institute (KDI) ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

Hari K. Nagarajan

National Council of Applied Economic Research (NCAER) ( email )

Parisila Bhawan
11 - Indraprastha Estate
New Delhi, 110002
India

Kailash C. Pradhan

National Council of Applied Economic Research (NCAER) ( email )

Parisila Bhawan
11 - Indraprastha Estate
New Delhi, 110002
India

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