Abstract:The intra-household linkages that comprise networks in village economies serve the important role of providing insurance. However, the flip side of these linkages is that they also propagate shocks. We show that when one household experiences a significant health shock, it propagates to other linked households via the village network. Because the shocked household is imperfectly insured, it adjusts production decisions-drawing down working capital, cutting input spending, and reducing labor hiring-hence affect… Show more
“…This pattern of lifecycle accumulation of land and livestock (both farming inputs) further suggests a strategic move towards self-farming in old age which goes hand in hand with the increase in self-farming food consumption that we document. Second, the stability of food gifts over the lifecycle suggests that informal risksharing arrangements which are important against unanticipated income shocks [Townsend (1994); Kinnan (2014)] do not contribute to consumption smoothing in old age. Figure 5.Lifecycle wealth.…”
Section: Resultsmentioning
confidence: 99%
“…In economies where large populations live on <$1 per day, how much can households smooth consumption over the lifecycle? While a lot of attention has been drawn to the testing of the informal arrangements that preserve consumption in response to income shocks (i.e., unanticipated income changes) in poor countries [Townsend (1994); Attanasio and Ríos-Rull (2000); Kinnan (2014)], less is known about the ability to smooth consumption against anticipated changes in income such as the arrival of old age. This is particularly important for poor countries where the lack of a pension system goes hand in hand with the presence of savings constraints [Dupas and Robinson (2013a, 2013b); Brune et al .…”
Section: Introductionmentioning
confidence: 99%
“…First, the decline in purchased food in old age together with a low ability to accumulate wealth and dissave implies that a large amount of lifecycle consumption smoothing that we document cannot be solely achieved through traditional savings as the standard lifecycle model predicts 5 . Second, despite the important role of informal arrangements in managing consumption insurance against unanticipated changes in income in poor countries [Townsend (1994); Kinnan (2014)], food gifts remain relatively constant across stages of life and hence do not contribute to consumption over the lifecycle 6…”
Using novel microdata, we explore lifecycle consumption in Sub-Saharan Africa. We find that households' ability to smooth consumption over the lifecycle is large, particularly, in rural areas. Consumption in old age is sustained by shifting to self-farmed staple food, as opposed to traditional savings mechanisms or food gifts. This smoothing strategy indicates two important costs. The first cost is a loss of human capital as children seem to be diverted away from school and into producing self-farmed food. Second, a diet largely concentrated in staple food (e.g., maize in Malawi) in old age results in a loss of nutritional quality for households headed by the elderly.
“…This pattern of lifecycle accumulation of land and livestock (both farming inputs) further suggests a strategic move towards self-farming in old age which goes hand in hand with the increase in self-farming food consumption that we document. Second, the stability of food gifts over the lifecycle suggests that informal risksharing arrangements which are important against unanticipated income shocks [Townsend (1994); Kinnan (2014)] do not contribute to consumption smoothing in old age. Figure 5.Lifecycle wealth.…”
Section: Resultsmentioning
confidence: 99%
“…In economies where large populations live on <$1 per day, how much can households smooth consumption over the lifecycle? While a lot of attention has been drawn to the testing of the informal arrangements that preserve consumption in response to income shocks (i.e., unanticipated income changes) in poor countries [Townsend (1994); Attanasio and Ríos-Rull (2000); Kinnan (2014)], less is known about the ability to smooth consumption against anticipated changes in income such as the arrival of old age. This is particularly important for poor countries where the lack of a pension system goes hand in hand with the presence of savings constraints [Dupas and Robinson (2013a, 2013b); Brune et al .…”
Section: Introductionmentioning
confidence: 99%
“…First, the decline in purchased food in old age together with a low ability to accumulate wealth and dissave implies that a large amount of lifecycle consumption smoothing that we document cannot be solely achieved through traditional savings as the standard lifecycle model predicts 5 . Second, despite the important role of informal arrangements in managing consumption insurance against unanticipated changes in income in poor countries [Townsend (1994); Kinnan (2014)], food gifts remain relatively constant across stages of life and hence do not contribute to consumption over the lifecycle 6…”
Using novel microdata, we explore lifecycle consumption in Sub-Saharan Africa. We find that households' ability to smooth consumption over the lifecycle is large, particularly, in rural areas. Consumption in old age is sustained by shifting to self-farmed staple food, as opposed to traditional savings mechanisms or food gifts. This smoothing strategy indicates two important costs. The first cost is a loss of human capital as children seem to be diverted away from school and into producing self-farmed food. Second, a diet largely concentrated in staple food (e.g., maize in Malawi) in old age results in a loss of nutritional quality for households headed by the elderly.
“…In particular, in this setting we have variation in the number of transactions per time period. A complete empirical analysis of the patterns of risk sharing in these villages, motivated by and based on the framework outlined in this paper, can be found in (Kinnan et al, 2019).…”
Section: An Arrow Debreu Economy: Financial Centrality As the Price O...mentioning
Consider an economy in which agents face income risk but interact in a stochastic financial network where the randomness is dictated by both chance and choice. We study the financial centrality of an agent defined as the ex-ante marginal social value of providing a small liquid asset to that agent. We show financially central agents are not only those who are linked often, but are more likely to be linked when (i) the realized network is fragmented, (ii) income risk is high, (iii) shocks are positively correlated,(iv) attitudes toward risk are more sensitive in the aggregate, and (v) there are tail risks. We apply our framework to models of financial markets with participation shocks, supply chains subject to disruptions, and village risk-sharing networks. We also study how the stochastic financial network structure influences bargaining, thereby endogenizing Pareto weights in the planner's problem. Evidence from Thai villages is consistent with these bargaining foundations, showing that agents who are more central indeed receive greater Pareto weight. We conclude by examining the welfare consequences of targeting larger liquid assets to key traders in markets, and to the most liquidity-sensitive links in supply chains.
“…Third, our paper relates to the small body of literature on income hiding in village economies. Hiding income can be an explanation for incomplete risk sharing and therefore may play a very important role in explaining barriers to insurance in a developing country context ([17, 19]). It also plays a role in the possibility to achieve first best allocation in dynamic consumption models ([50]).…”
We propose a novel laboratory experiment to document the pressure to share income within social networks in Africa. We find that the redistributive pressure exerted via the possibility of receiving a claim increases altruism, while the possibility of hiding from such claim reduces it. Our results indicate that sharing norms are crucial drivers of giving to other members of the network. We also find that pressure to share has a detrimental effect on the undertaking of profitable but risky investments.
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