Consumption and Investment in Resource Pooling Family Networks

Abstract

This article examines a novel motive for resource pooling in family networks in rural economies: to relax credit constraints and facilitate investment in non-collateraliseable assets for which credit market imperfections are most binding. We thus complement established literatures examining risksharing motives for resource transfers within family networks, as well as motives based on kinship tax obligations. We do so exploiting the Progresa programme data, in which family networks can be identified, households are subject to large exogenous resource inflows, and detailed responses on consumption and an array of investments can be tracked in a household panel over five years.

Insuring against health shocks: Health insurance and household choices

“…17 I also construct household consumption by dividing total food consumption (among all members) by an adult equivalence scale. The adult equivalence scale used is one for household members aged 18 years or older, and 0.73 otherwise (Angelucci, De Giorgi, and Rasul, 2012). The results are robust to this alternative measure of household consumption.…”

Structural Experimentation to Distinguish between Models of Risk Sharing with Frictions in Rural Paraguay

“…This suggests that the same intervention could have very different impacts in different villages. Suggestive evidence along these lines is provided by Jakiela and Ozier (2016) who show that rates of productive investment and entrepreneurship are lower in villages in which hidden information frictions are strongest, and Angelucci et al (2017) who show that the impact of conditional cash transfers in Mexico depends on network structure. More generally, there is a growing body of research which studies sources of similarities and differences in the impacts of interventions across settings (Brune et al, 2017;Meager, 2016;Vivalt, 2016).…”

“…More recently, researchers with access to data with information on networks have documented the importance of risk-sharing within social networks (De Weerdt and Dercon, 2006;Fafchamps and Lund, 2003;Udry, 1994). Angelucci et al (2017) find evidence that the shock of receiving a conditional cash transfer from Progresa in Mexico is shared only within the extended family. But, even with detailed information on social networks, researchers reject full insurance within the network, suggesting that there is still some important friction preventing optimal full insurance.…”

Group Size and the Efficiency of Informal Risk Sharing

“…Instead, households rely on a variety of informal mechanisms, such as (informal) transfers and loans from relatives and friends, to deal with the consequences of risk (Besley, ). Such mechanisms are usually based on social ties and groups, such as family or friendship, which are typically more effective in overcoming the aforementioned market imperfections (Rosenzweig, ; Rosenzweig and Stark, ; Fafchamps and Lund, ; Fafchamps and Gubert, ; Angelucci et al ., ) . A sizeable literature finds that these informal mechanisms are remarkably effective in helping households share risk, though they are unable to perfectly protect household well‐being.…”

“… A large literature has documented the importance of the extended family for risk sharing in developing countries (Rosenzweig, ; Stark and Lucas, ; Rosenzweig and Stark, ; Foster and Rosenzweig, ; Fafchamps and Lund, ; Fafchamps and Gubert, ; Witoelar, ; Angelucci et al ., ). …”