Estimating Dynamic Contracts: Risk Sharing in Village Economies

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dc.contributor.author LACZÓ, Sarolta
dc.date.accessioned 2010-07-28T13:46:31Z
dc.date.available 2010-07-28T13:46:31Z
dc.date.issued 2010
dc.identifier.issn 1830-7728
dc.identifier.uri http://hdl.handle.net/1814/14378
dc.description.abstract This paper studies the role of preference and income risk heterogeneity when risk sharing is partial due to limited commitment. I estimate the dynamic contract determining self-enforcing insurance transfers in a structural manner, and allow the coefficient of relative risk aversion and multiplicative income risk to differ across households. I find that the model explains the consumption allocation significantly better than the homogenous version and the benchmarks of perfect risk sharing and autarky, using household survey data from rural Pakistan. Enforcement constraints bind more often with heterogeneous households, implying less risk sharing. The paper then examines how social policies would interact with existing informal insurance arrangements. I simulate the effects of counterfactual transfers targeting the poor on consumption by both eligible and ineligible households. In the case of a one-time transfer, the heterogeneous (homogeneous) model predicts that consumption by ineligible households increases by one fifth (one fourth) of the transfer; if the transfer is permanent, the predicted share of ineligible households is one tenth (one fifth). en
dc.language.iso en en
dc.relation.ispartofseries EUI MWP en
dc.relation.ispartofseries 2010/17 en
dc.subject Risk sharing en
dc.subject limited commitment en
dc.subject preference heterogeneity en
dc.subject incomplete markets en
dc.subject structural microeconometrics en
dc.subject rural Pakistan en
dc.title Estimating Dynamic Contracts: Risk Sharing in Village Economies en
dc.type Working Paper en
dc.neeo.contributor LACZÓ|Sarolta|aut|


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