Self-Production, Friction, and Risk Sharing against Disasters: Evidence from a developing country

Author Name SAWADA Yasuyuki (Faculty Fellow, RIETI / Faculty of Economics, the University of Tokyo) / NAKATA Hiroyuki (Essex Business School, University of Essex) / KOTERA Tomoaki (Research Assistant, RIETI / Graduate School of Economics, the University of Tokyo)
Creation Date/NO. March 2011 11-E-017
Research Project The Foreign Aid Governance
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This paper uses a unique household data set collected in Vietnam to empirically test the necessary conditions for an extended version of the consumption risk-sharing hypothesis. The test explicitly incorporates self-production and uses natural disasters such as avian influenza, droughts, and floods to identify the effectiveness of market and non-market risk-sharing mechanisms. With these additional treatments, full risk sharing cannot be rejected, which suggests the presence of omitted variable bias in existing studies that reject full risk sharing. We also find that credit constraints have a significant impact, although limited commitment is not necessarily serious.

Published: Sawada, Yasuyuki, Hiroyuki Nakata, and Tomoaki Kotera, 2017. "Self-production, friction, and risk sharing against disasters: Evidence from a developing country," World Development, Vol. 94, pp. 27-37