Risk-Sharing between and within Families

Hayashi, Fumio; Altonji, Joseph G.; Kotlikoff, Laurence J.

doi:10.2307/2171783

Cited by 273 publications

(203 citation statements)

References 9 publications

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“…Central questions addressed in the empirical literature have been whether there is any evidence of complete risk-sharing both in communities in developing country as in a wide variety of settings, including the US and how (partial or complete) risk-sharing is obtained. The tests have generally found that complete risk-sharing has to be rejected, including in the US, in communities in India, in extended families in the PSID or even within nuclear households in Ethiopia (Townsend 1994, Hayashi et al 1996, Dercon and Krishnan 2000b. Nevertheless, the evidence is consistent with partial risk-sharing.…”

Section: Informal Risk-sharing and Safety Netsmentioning

confidence: 99%

Income Risk, Coping Strategies, and Safety Nets

Dercon

2002

The World Bank Research Observer

774

545

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High income risk is part of life in developing countries. Climatic risks, economic fluctuations, but also a large number of individual-specific shocks make these households vulnerable to serious hardship. For example, details are given on the various shocks and events causing serious hardship to rural households in Ethiopia in the last twenty years. Not surprisingly for Ethiopia, climatic events are the most common cause of shocks, but many households suffer from other common or idiosyncratic shocks related to economic policy, labour or livestock.Rural and urban households in developing countries face substantial risk. Households in risky environments have developed sophisticated (ex ante) risk-management and (ex post) risk-coping strategies, including self-insurance via savings and informal insurance mechanisms while formal credit and insurance markets appear to contribute only little to reducing income risk and its consequences. Despite these strategies, vulnerability to poverty linked to risk remains high. In this paper, I focus on the opportunities available to households to use risk-management and risk-coping strategies, and on the constraints on their effectiveness, by reviewing some of the recent literature on savings as insurance, income diversification and smoothing, and informal risk-sharing arrangements. Risk and lumpiness limit the opportunities to use assets as insurance. Entry constraints limit the usefulness of income diversification. Informal risk-sharing only provides limited protection, especially for some of the poor and their sustainability during periods of change is in doubt. Public safety nets are likely to be beneficial, but their impact is at times limited while they may have negative externalities on households not covered by the safety net. The paper also discusses the implications for policy as well as the information requirements to increase our understanding of vulnerability and implement better vulnerability reducing policies.

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Section: Informal Risk-sharing and Safety Netsmentioning

confidence: 99%

Income Risk, Coping Strategies, and Safety Nets

Dercon

2002

The World Bank Research Observer

774

545

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“…Formal tests of the complete markets hypothesis [see Attanasio and Davis, 1996], have often found the null hypothesis of full consumption insurance is rejected. Attempts to salvage the theory by allowing for risk sharing within the family and no risk sharing among unrelated families have also been unable to find evidence of complete insurance [Hayashi, Altonji and Kotlikoff, 1996]. …”

Section: Introductionmentioning

confidence: 99%

Consumption inequality and partial insurance

Blundell¹,

Pistaferri²,

Preston³

2004

Working Paper Series

536

1,008

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This paper examines the transmission of income inequality into consumption inequality and in so doing investigates the degree of insurance to income shocks. Panel data on income from the PSID is combined with consumption data from repeated CEX cross-sections to identify the degree of insurance to permanent and transitory shocks. In the process we also present new evidence of the growth in the variance of permanent and transitory shocks in the US during the 1980s. We find some partial insurance of permanent income shocks with more insurance possibilities for the college educated and those nearing retirement. We find little evidence against full insurance for transitory income shocks except among low income households. Tax and welfare benefits are found to play an important role in insuring permanent shocks. Adding durable expenditures to the consumption measure suggests that durable replacement is an important insurance mechanism, especially for transitory income shocks.

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“…2 See, e.g., Attanasio and Davis (1996) and Hayashi et al (1996). 3 Examples include Topel (1990), Jacobson et al (1993), Farber (2005), Couch and Placzek (2010) and Davis and von Wachter (2011).…”

Section: Introductionmentioning

confidence: 99%

Job displacement risk and severance pay

Cozzi

Fella

2016

Journal of Monetary Economics

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This paper is a quantitative, equilibrium study of the insurance role of severance pay when workers face displacement risk and markets are incomplete. A key feature of our model is that, in line with an established empirical literature, job displacement entails a persistent fall in earnings upon re-employment due to the loss of tenure. The model is solved numerically and calibrated to the US economy. In contrast to previous studies that have analyzed severance payments in the absence of persistent earning losses, we find that the welfare gains from the insurance against job displacement afforded by severance pay are sizable.Keywords: Severance Payments, Incomplete Markets, Welfare.JEL classification: E24, D52, D58, J65.$ We thank the editor, Urban Jermann, and an anonymous referee for helpful and constructive comments, as well as Gianluca Violante for his help on this project. We are also grateful to the George Alessandria, Rui Castro, Henry Farber, Dirk Krueger, Igor Livshits, Claudio Michelacci, Makoto Nakajima, Fabien Postel-Vinay, Víctor Ríos-Rull, Richard Rogerson, Andrew Scott and seminar participants at several conferences and institutions for useful comments and suggestions.

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Risk-Sharing between and within Families

Cited by 273 publications

References 9 publications

Income Risk, Coping Strategies, and Safety Nets

Income Risk, Coping Strategies, and Safety Nets

Consumption inequality and partial insurance

Job displacement risk and severance pay

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