TY - JOUR
T1 - Informal insurance arrangements with limited commitment
T2 - Theory and evidence from village economies
AU - Ligon, Ethan
AU - Thomas, Jonathan P.
AU - Worrall, Tim
PY - 2002/1/1
Y1 - 2002/1/1
N2 - Recent work on consumption allocations in village economies finds that idiosyncratic variation in consumption is systematically related to idiosyncratic variation in income, thus rejecting the hypothesis of full risk-pooling. We attempt to explain these observations by adding limited commitment as an impediment to risk-pooling. We provide a general dynamic model and completely characterise efficient informal insurance arrangements constrained by limited commitment, and test the model using data from three Indian villages. We find that the model can fully explain the dynamic response of consumption to income, but that it fails to explain the distribution of consumption across households.
AB - Recent work on consumption allocations in village economies finds that idiosyncratic variation in consumption is systematically related to idiosyncratic variation in income, thus rejecting the hypothesis of full risk-pooling. We attempt to explain these observations by adding limited commitment as an impediment to risk-pooling. We provide a general dynamic model and completely characterise efficient informal insurance arrangements constrained by limited commitment, and test the model using data from three Indian villages. We find that the model can fully explain the dynamic response of consumption to income, but that it fails to explain the distribution of consumption across households.
UR - http://www.scopus.com/inward/record.url?scp=0036176877&partnerID=8YFLogxK
U2 - 10.1111/1467-937X.00204
DO - 10.1111/1467-937X.00204
M3 - Article
AN - SCOPUS:0036176877
VL - 69
SP - 209
EP - 244
JO - Review of Economic Studies
JF - Review of Economic Studies
SN - 0034-6527
IS - 1
ER -