Essays on risk-sharing and development

Abstract

Individuals living in developing economies are subject to a wide variety of risks. Moreover, since private and public formal institutions designed to help individuals coping with risks tend to be weaker and narrower than in rich countries, these risks very often bear a heavy burden on welfare. If the preferences of agents can be characterized by concave utility functions, these agents will want to spread risk across time and among themselves. We focus here on mechanisms allowing agents to share risk among themselves, and we look more particularly at environments where formal insurance options are incomplete or absent. This thesis offers three chapters which goal is to analyze the extent to which risk sharing is affected by imperfections in the insurance or in the credit markets. In the first two chapters, we take a microeconomic perspective and we examine how rural farmers cope with income shocks in village economies characterized by the absence of formal insurance markets. In the last chapter, we adopt a macroeconomic perspective and we look at the role of the domestic financial sector development in fostering risk sharing through financial integration between countries.