Consumption Smoothing and the Welfare Consequences of Social Insurance in Developing Economies / Raj Chetty, Adam Looney.

Format:

Book

Author/Creator:

Chetty, Raj.

Contributor:

Looney, Adam.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11709.

NBER working paper series no. w11709

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

Studies of risk in developing economies have focused on consumption fluctuations as a measure of the value of insurance. A common view in the literature is that the welfare costs of risk and benefits of social insurance are small if income shocks do not cause large consumption fluctuations. We present a simple model showing that this conclusion is incorrect if the consumption path is smooth because individuals are highly risk averse. Empirical studies find that many households in developing countries rely on inefficient methods to smooth consumption, suggesting that they are indeed quite risk averse. Hence, social safety nets may be valuable in low-income economies even when consumption is not very sensitive to shocks.

Notes:

October 2005.

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