Income Volatility, Risk-Coping Behavior and Consumption Smoothing Mechanisms in Developing Countries: A Survey

Desarrollo y Sociedad, Vol. 58, pp. 1-48, March 2007

41 Pages Posted: 29 Mar 2007

See all articles by Javier Eduardo Baez

Javier Eduardo Baez

World Bank; IZA Institute of Labor Economics

Abstract

This paper provides a review of the general concepts and influential findings of empirical research on risk-coping behavior and consumption smoothing arrangements in rural economies of developing countries. Low-income individuals live with high levels of risk and limited access to formal financial systems for credit and insurance. In general, the evidence indicates that their informal mechanisms to mitigate risk play an important role in partially protecting their consumption. However, these alternatives do not allow rural households to achieve an optimal allocation of risk across time and income cycles and are costly on equity grounds. In addition, risks that remain uninsured seem to have adverse long term welfare consequences. Public interventions can play a significant role in improving the income security of rural households. In doing so, it is crucial to have a good understanding of the causes and not simply the symptoms of informal risk-coping behavior and its social welfare implications

Keywords: risk-coping behavior, consumption-smoothing arrangements, income volatility, informal insurance, developing countries

JEL Classification: O120, O150, O160, O170

Suggested Citation

Baez, Javier Eduardo, Income Volatility, Risk-Coping Behavior and Consumption Smoothing Mechanisms in Developing Countries: A Survey. Desarrollo y Sociedad, Vol. 58, pp. 1-48, March 2007, Available at SSRN: https://ssrn.com/abstract=975000

Javier Eduardo Baez (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
274
Abstract Views
1,353
Rank
172,895
PlumX Metrics