Poverty and the Welfare Costs of Risk Associated with Globalization

globalization, risk, growth, inequality, shocks, consumption

Inferring informal risk-sharing regimes: Evidence from rural Tanzania

This paper studies informal risk-sharing regimes in a unified framework by examining intertemporal consumption behavior of rural households in Tanzania. We exploit  a theoretically-consistent link between interest rates and cross-sectional consumption moments to test alternative risk-sharing models without requiring data on interest rates or assuming a restriction to eliminate the need for such data, which are often unavailable in developing economies. We specify tests that allow us to distinguish among models even with temporal dependence in income shocks. Our analysis shows that the consumption pattern in rural Tanzania is consistent with the self-insurance regime, and that risk aversion varies substantially across districts. Imposing a strict condition on interest rates, as often done in prior literature, misses their intertemporal heterogeneity and biases the estimation of risk aversion

Inferring Informal Risk-Sharing Regimes: Evidence from Rural Tanzania

This paper studies informal risk-sharing regimes in a unified framework by examining intertemporal consumption behavior of rural households in Tanzania. We exploit  a theoretically-consistent link between interest rates and cross-sectional consumption moments to test alternative risk-sharing models without requiring data on interest rates or assuming a restriction to eliminate the need for such data, which are often unavailable in developing economies. We specify tests that allow us to distinguish among models even with temporal dependence in income shocks. Our analysis shows that the consumption pattern in rural Tanzania is consistent with the self-insurance regime, and that risk aversion varies substantially across districts. Imposing a strict condition on interest rates, as often done in prior literature, misses their intertemporal heterogeneity and biases the estimation of risk aversion

Evaluating different approaches to estimating vulnerability

A number of researchers have recently proposed a variety of different `vulnerability'measures designed to capture the welfare consequences of risk for poor households, and also proposed a variety of different approaches to estimating these various measures of household vulnerability. However, it's possible to `mix-and-match'estimators and measures. Here we conduct Monte Carlo experiments designed to explore the performance of different estimators with different measures, under different assumptions regarding the underlying economic environment. We find that when the environment is stationary, and consumption expenditures are measured without error, that the best estimator is one proposed by Chaudhuri (2001), regardless of what measure of vulnerability is employed. If the vulnerability measure is risk-sensitive, but consumption is measured with error, a simple estimator proposed by the authors(2003) generally performs best. However, when the distribution of consumption is non-stationary, a modification of an estimator proposed by Pritchett et al. (2000) performs best. Future research should focus on combining the efficiency of the Chauduri estimator with the good properties of the authors (in environments with measurement error), and Pritchett (in non-stationary environments) estimators. However, even with present technology estimating vulnerability is simple, and much more informative, and useful than are static poverty measures, provided one has at least two rounds of panel data.Environmental Economics&Policies,Economic Theory&Research,Inequality,Poverty Lines,Consumption

On the Efficacy of Contractual Provisions for Processing Tomatoes

This paper uses extensive data on production outcomes for processing tomato growers in California to examine the efficacy of explicit incentives observed in grower-processor contracts. Our data include all deliveries of tomatoes to some 51 processors over a period of 7 years in which at least 65 unique types of contracts are employed. Results indicate that incentives account for a significant proportion of observed variation in production outcomes, and that complementarities across different sorts of "incentive instruments" play a prominent role in contract design. Although explicit incentives explain a substantial portion of the variation in production outcomes relative to that which could be explained by incentives (as captured by processor/year fixed effects), there remains considerable variation which might be accounted for by unobserved or implicit incentives. Finally, we control for a quite exhaustive set of factors other than incentive provisions that might conceivably affect expected production outcomes, yet are still left with a substantial amount of unexplained variation.Crop Production/Industries,

Nutrition and Risk Sharing within the Household

Using data on individual consumption from farm households in the Philippines, we construct a direct test of risk-sharing within the household. We contrast the efficient outcomes predicted by the unitary household model with the outcomes we might expect if food consumption delivers not only utils, but also nutrients affecting future productivity. The efficiency conditions which characterize the within household allocation of food under the unitary model are violated, as consumption responds to earnings shocks. If productivity depends on nutrition, this explains some but not all of the response, as earnings “surprises” have some effect on the cost and composition of diet.

QUALITY MEASUREMENT AND RISK-SHARING IN CONTRACTS FOR CALIFORNIA FRUITS AND VEGETABLES

We hypothesize that imperfect quality measurement in contracts for fresh fruits and vegetables results in a moral-hazard problem, and that the final price of the produce provides additional information regarding quality. As a consequence, growers are not shielded from all price risk. This hypothesis is tested informally with observations on actual contracts in California.Demand and Price Analysis, Risk and Uncertainty,