Risk-sharing networks and insurance against illness

Most risk-sharing tests on developing country data are conducted at the level of the village; generally, the full risk-sharing hypothesis is rejected. This paper uses detailed data on all insurance networks within a village in Tanzania; networks are not clustered but largely overlapping. We test whether full risk-sharing occurs within these networks. While village level full-insurance cannot be rejected for food consumption, we find evidence consistent with at least partial insurance of non-food consumption via networks.     

Informal insurance in social networks

This paper studies bilateral insurance schemes across networks of individuals. While transfers are based on social norms, individuals must have the incentive to comply. We investigate the structure of self-enforcing insurance networks. Network links play two distinct and possibly conflictual roles. They act as conduits for both transfers and information; affecting the scope for insurance and the severity of punishments upon noncompliance. Their interaction leads to a characterization of stable networks as suitably “sparse” networks. Thickly and thinly connected networks tend to be stable, whereas intermediate degrees of connectedness jeopardize stability. Finally, we discuss the effect of discounting on stability.     

Moral hazard,insurance claims,and repeated insurance contracts

Abstract The paper develops a simple model of repeated automobile insurance contracts, providing a framework for analyzing changes in aggregate insurance data in periods of changes that affect driver incentives. Experience rating of premiums gives drivers an incentive to exert effort to avoid accidents (ex ante moral hazard), and an incentive to hide accidents (ex post moral hazard). The empirical analysis, using data from the competitive insurance markets in Ontario and Alberta over a period of major legislative changes in Ontario, suggests that much of the recent decline in accidents in Ontario was due to an increased incentive to hide accidents.     

Land tenure and investment incentives: Evidence from West Africa

The existing literature on the relationship between property rights in land and agricultural investment in Africa has given results that are often confusing and contradictory. I make two clarifying contributions to this literature. First, I pull together existing studies and investigate whether the results they find have been affected by research methods or local contexts. Studies with small sample sizes, those that use binary investment measures, and those that control for household fixed effects are less likely to find a statistically significant link between land tenure and investment. Self-reported tenure security has been a poor predictor of investment outcomes. Second, I test for a relationship between land tenure and agricultural investment in nine data sets from West Africa. While the link between tenure and investment is significant for fallow and tree planting, it is less robust for labor use and other inputs, such as manure or chemical fertilizer.     

Is life more risky in the open? Household risk-coping and the opening of China's labor markets

This paper uses a unique panel of data from rural China to analyze the impact of expanding connections to off-farm labor markets on the income and consumption of farm households. With stronger village ties to both migrant and local off-farm labor markets, households in previously autarkic village communities experience reduced exposure to shocks affecting agricultural production. The analyses presented in this paper control for the persistent effect of past shocks influencing income and consumption, household attrition potentially correlated with shocks, and endogeneity of household demographic composition, land holdings and village network connections to migrant and local labor markets.     

Tenure security and land-related investment: Evidence from Ethiopia

We use a large data set from Ethiopia that differentiates tenure security and transferability to explore determinants of different types of land-related investment and its possible impact on productivity. While we find some support for endogeneity of investment in trees, this is not the case for terraces. Transfer rights are unambiguously investment-enhancing. The large productivity effect of terracing implies that, even where households undertake investments to increase their tenure security, the level of such investment may be below the social optimum. In Ethiopia, government action to increase tenure security and transferability of land rights can significantly enhance rural investment and productivity.     

Tariff pass-through and the distributional effects of trade liberalization

This paper estimates the distribution of welfare gains due to the trade reforms in India by simultaneously considering the effect on prices of tradable goods and wages. The cost of consumption for each household is affected by the domestic price changes, while wage incomes adjust to these price changes in equilibrium. Three rounds of the Indian Employment and Consumption Surveys are used for the analysis. The price transmission mechanisms are estimated for both rural and urban areas to understand the extent to which the trade reforms are able to affect the domestic prices. In order to assess the distributional effects, a series of nonparametric local linear regressions are estimated. The findings show that households at all per capita expenditure levels had experienced gains as a result of the trade liberalization, while the average effect was generally pro-poor and varied significantly across the per capita expenditure spectrum.     

Child fostering in Africa: When labor and schooling motives may coexist

The paper proposes a theoretical framework for understanding purposive child fostering in Africa, whereby a non-orphaned child is sent to live temporarily with relatives. In the model, adults decide whether to foster in or out a child in conjunction with other household choices, e.g. own time allocation between market and non-market activities, children's amount of work, and schooling. By allowing for positive externalities from fostering, and thus asymmetric motives for fostering in (labor) and out (human capital), the proposed framework predicts that school-age children are sent to better-off households and that some families may foster in and out simultaneously. The model identifies the conditions under which all actors involved, children included, may benefit from fostering arrangements, but also points to situations where fostering may become an opportunity to marginalize a subset of children. The paper aims to provide a sound theoretical foundation that sheds light on why there exists mixed empirical evidence on the effects of fostering on children's well being, and cautions against demonizing non-parent residence as unequivocally detrimental to children.     

Identifying non-cooperative behavior among spouses: Child outcomes in migrant-sending households

I propose a model of household decision-making under asymmetric information and show that resulting allocations may not be fully cooperative. The model yields a simple test for cooperative decision-making, which I apply to data from China. I find that, when the father migrates without his family, children spend more time in household production, while mothers spend less time in both household production and income-generating activities. This is not consistent with standard cooperative models of the household: simply reallocating time to compensate for the father's absence would cause an increase in household labor for both children and mothers and, if migration occurs in response to a negative shock, we should observe an increase in mothers' time in income-generating activities rather than a reduction. The results also do not appear to be driven by an increase in mothers' bargaining power, as children's human capital is not affected by migration, controlling for income.     

Does increased access increase equality? Gender and child health investments in India

Increases in access to social services are often thought to decrease inequality in the level of these services between advantaged and disadvantaged groups. This is an issue in the developing world, where policy-makers often argue that increasing the level of health care, for example, will decrease gender inequality. However, increases in access to services often have empirically ambiguous effects on inequality, increasing it in some cases and decreasing it in others. This paper argues that this is not surprising, and simple economic theory suggests that we should expect a non-monotonic relationship between access and inequality. At low levels of access to investments, there is no investment for either the advantaged or disadvantaged group, producing equality. Increases in access increase investment for the advantaged group first, generating inequality. Further increases in access increase investment in the disadvantaged group, decreasing inequality. I test the predictions of this theory using data on the availability of health camps (or distance to health centers) and gender differences in vaccinations in India. I find strong support for a non-monotonic relationship between access and gender equality.     

SHARECROPPING,LAND EXPLOITATION AND LAND‐IMPROVING INVESTMENTS*

This paper analyses the tenancy problem in a dynamic setup and addresses two long‐standing issues: inefficiency and lack of investment. It considers the problems that the tenant, with a shorter‐term interest in the farm than the landlord, might overexploit the land to maximize immediate returns even at the cost of future damages, and under‐supply long‐run productivity improving investments in land. I show that the efficient (first‐best) levels of input use and investment can be achieved (both in the steady state and in transition) by a suitable share contract which, by dampening incentives to maximize current returns, addresses the land exploitation problem, and by an appropriate cost allocation rule which can address the investment problem.     

Who benefits more from higher household consumption? The intra-household allocation of nutrients in China

Previous studies find that human capital investments in boys are less income elastic than investments in girls, attributing this result to favoritism toward boys. I show theoretically that it is plausible for more productive or favored household members to have higher income elasticities. I then investigate this question empirically, utilizing panel data on individual nutrient intake from the China Health and Nutrition Survey (CHNS) to analyze how changes in household per-capita nutrient intake affect the intra-household allocation of nutrients. To deal with potential biases due to omitted variables and simultaneity, I use measures of rainfall variation as instruments. I find that nutritional intakes are more elastic for males (especially prime-age men) than for females, and significantly less elastic for the elderly.     

Remittances and savings from international migration: Theory and evidence using a matched sample

The central question of this paper concerns the implications of remittance flows for migrants and their origin households in the country of origin. This paper represents the first attempt to present a disaggregated view of international remittance flows using a matched sample of international migrants and their origin families. I investigate two types of remittances: transfers to the home family and savings in the country of origin. The empirical evidence provides support for the altruistic model of transfer behavior. Wealthier origin families tend to receive lower transfers, other things being equal. However, remittances sent to finance origin country investments are positively associated with origin household wealth. The estimation strategy addresses two common problems that arise in investigating remittance behavior: omitted variable bias and the measurement of origin household resources.     

Civil wars beyond their borders: The human capital and health consequences of hosting refugees

In early 1994, Kagera - a region in northwestern Tanzania - was flooded by more than 500,000 refugees fleeing from the genocides of Burundi and Rwanda. I use this population shock and a series of topographic barriers that resulted in variation in refugee intensity to investigate the short- and long-run causal effects of hosting refugees on outcomes of local children. This strategy provides evidence of adverse impacts over one year after the shock: a worsening of children's anthropometrics (0.3 standard deviations), an increase in the incidence of infectious diseases (15-20 percentage points) and an increase in mortality for children under five (7 percentage points). I also find that intra- and inter-cohort variation in childhood exposure to the refugee crisis reduced height in early adulthood by 1.8 cm (1.2%), schooling by 0.2 years (7.1%) and literacy by 7 percentage points (8.6%). Designs using the distance to the border with Rwanda as an alternative identification strategy for refugee intensity support the findings. The estimates are robust across different samples, specifications and estimation methods and provide evidence of a previously undocumented indirect effect of civil wars on the well-being of children and subsequent economic growth in refugee-hosting communities.     

Conflict displacement and labor market outcomes in post-war Bosnia and Herzegovina

The war in Bosnia and Herzegovina of the early nineties displaced 1.3 million people. This study uses longitudinal data to document the effects of this displacement on labor market outcomes. To account for endogeneity in displacement, I exploit the fact that the level of violence affected the decision to leave and that pre-war economic performance is orthogonal to local violence levels. I find that displaced Bosnians are less likely to be working relative to the people who stayed. Displaced men experience higher unemployment levels, and displaced women are more likely to drop out of the labor force.     

Schooling,wages and profits: Negative pecuniary externalities from schooling and their consequences for schooling investments

This paper tests the hypothesis that the schooling of the poor reduces profits for landowners, and that such negative pecuniary externalities in turn adversely affect schooling investments made by local governments. A theoretical model of occupational choice in the presence of credit and labor market constraints, combined with existing political economy models of the delivery of local public goods delivers such a result. This hypothesis is tested using household data from India. The empirical analysis shows that profits are reduced by the schooling of the poor and that this is primarily because of the effect of schooling on wages. It also shows that the negative effect of wages on profits reduces government provided schooling inputs.     

Efficiency and equity impacts of rural land rental restrictions: Evidence from India

Recognition of the potentially deleterious implications of inequality in opportunity originating in a skewed asset distribution has spawned considerable interest in land reforms. However, little attention has been devoted to the fact that, in the longer-term, the measures used to implement land reforms, especially rental restrictions, could negatively affect productivity. Use of state level data on rental restrictions, together with a nationally representative survey from India suggests that, contrary to original intentions, rental restrictions negatively affect productivity and equity by reducing scope for efficiency-enhancing rental transactions that benefit poor producers. Simulations suggest that, by doubling the number of producers with access to land through rental, from about 15 million currently, liberalization of rental markets could have far-reaching impacts.     

Household coping in war- and peacetime: Cattle sales in Rwanda, 1991–2001

The economic literature has given due attention to household coping strategies in peacetime. In contrast, little is known about such strategies in wartime. This paper studies the use of cattle as a buffer stock by Rwandan households during 1991–2001, a period characterized by civil war and genocide. It is found that the probability of selling cattle increases upon the occurrence of both peacetime and wartime covariant adverse income shocks. The peacetime cattle sales are largely explained by shifts in the household asset portfolio. In contrast, in 1994, the year of the genocide, almost half of the cattle sales were motivated by the need to buy food. However, we argue that the effectiveness of this coping strategy was severely reduced due to the wartime conditions. First, during the year of ethnic violence, cattle prices plummeted to less than half of their pre-genocide value. Second, we find that households most targeted in the violence did not sell cattle. We discuss several explanations for this latter finding.     

Group insurance and lending with endogenous social collateral

We construct a dynamic model of self-enforcing insurance provision and lending to a community of borrowers who are connected by risk-sharing arrangements that are themselves subject to enforcement problems, as in Kocherlakota (1996). We show that an outside lender offering constant-consumption contracts can earn a higher profit if he conditions his repeated interactions with each borrower on the history of his interactions with all the group members (a joint liability contract), rather than on his history with that borrower only (individual liability contracts). This result holds even in the absence of informational asymmetries. The observation driving it is that with individual liability contracts, a joint welfare-maximizing group may prefer to have one or more group members default on their contracts, so that the group can consume a mix of outside funds and the defaulters' stochastic income. One contribution of our work is to give precise economic content to the concept of “social collateral” as the per-agent surplus from group risk-sharing over autarky. The group can deter its members from defaulting on their contracts with the principal by threatening to reduce that surplus.     

Income and bargaining effects on education and health in Brazil

This study examines the impacts of the 1991 reform of Brazil's rural pension system on schooling and health indicators. We conclude that the reform had significant positive effects on schooling, especially on literacy for girls co-residing with a male pensioner. We were unable to find similar results for children living with a female pensioner. We further investigated whether these results were driven by bargaining power differences within households; our findings suggest that this explanation is plausible.