what went wrong with the recent reforms in the southern cone this paper describes and interprets the outcome of the reform packages in chile argentina and uruguay during 1974 83 it is shown that all three countries experienced initial success with the rescue operation from the severe macroeconomic disequilibrium at the inception of the reforms the paper then discusses the areas in which the reforms were successful and why the countries experienced boom bust cycles resulting in large increases in external indebtedness and internal financial crises the paper attributes the failure of the reforms to a combination of policy inconsistencies implementation difficulties and market frictions jointly these factors generated a sustained appreciation of the real exchange rate and a large spread between the cost of dollar denominated and peso denominated loans in turn the appreciation and interest rate difference created protracted opportunities for arbitrage that distracted firms from the business of production

the short term impact of unconditional cash transfers to the poor experimental evidence from kenya we use a randomized controlled trial to study the response of poor households in rural kenya to unconditional cash transfers from the ngo givedirectly the transfers differ from other programs in that they are explicitly unconditional large and concentrated in time we randomized at both the village and household levels furthermore within the treatment group we randomized recipient gender wife versus husband transfer timing lump sum transfer versus monthly installments and transfer magnitude us 404 ppp versus us 1 525 ppp we find a strong consumption response to transfers with an increase in household monthly consumption from 158 ppp to 193 ppp nine months after the transfer began transfer recipients experience large increases in psychological well being we find no overall effect on levels of the stress hormone cortisol although there are differences across some subgroups monthly transfers are more likely than lump sum transfers to improve food security whereas lump sum transfers are more likely to be spent on durables suggesting that households face savings and credit constraints together these results suggest that unconditional cash transfers have significant impacts on economic outcomes and psychological well being

why do defaults affect behavior experimental evidence from afghanistan we report on an experiment examining why default options impact behavior by randomly assigning employees to different varieties of a salary linked savings account we find that default enrollment increases participation by 40 percentage points an effect equivalent to providing a 50 matching incentive we then use a series of experimental interventions to differentiate between explanations for the default effect which we conclude is driven largely by present biased preferences and the cognitive cost of thinking through different savings scenarios default assignment also changes employees attitudes toward saving and makes them more likely to actively decide to save after the study concludes

real exchange rate targeting and inflation in turkey an empirical analysis with policy credibility abstract in this paper we make an empirical investigation into the conflict among objectives under a real exchange rate policy i e between the trade balance and domestic inflation this occurs when the nominal exchange rate is managed to achieve a certain level of the real exchange rate in order to main external competitiveness our empirical analysis draws on the turkish case whereby the exchange rate has been the key policy instrument since the 1980s the results from the simulation experiments with a well defined macromodel where the devaluation expectations are explicitly considered indicate moderate inflationary consequences of a real exchange rate policy based on the relative purchasing power parity ppp rule in turkey moreover a real exchange rate appreciation is found to be contractionary these are common characteristics of the demand determined output case another major conclusion is that the exchange rate policy can provide an anchor for price stability only if it is credible

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 arrangements with limited commitment theory and evidence from village economies 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

the effects of education on financial outcomes evidence from kenya abstractwe study the effects of education on the financial outcomes of young people using kenya s introduction of free primary education fpe in 2003 as an exogenous shock to schooling our identi

risk and insurance in a rural credit market an empirical investigation in northern nigeria credit contracts play a direct role in pooling risk between households in northern nigeria repayments owed by borrowers depend on realizations of random shocks by both borrowers and lenders the paper develops two models of state contingent loans the first is a competitive equilibrium in perfectly enforceable contracts the second permits imperfect information and equilibrium default estimates of both models indicate that quantitatively important state contingent payments are embedded in these loan transactions but that a fully efficient risk pooling equilibrium is not achieved the research is based on a year long survey in zaria nigeria conducted by the author

editorial marketing science in emerging markets in this editorial accompanying the special section on marketing science in emerging markets msem we describe how research on emerging markets can contribute to richer theoretical and substantive understanding of markets and marketing such research can also aid in providing managerial guidance on how to operate in emerging markets we conclude with a description of the selection and review process for the special section and an overview of the four papers being published

household consumption smoothing through ethnic ties evidence from cote d ivoire abstract this paper investigates the hypothesis that households in cote d ivoire take part in spatially diversified risk sharing arrangements with members of their own ethnic group empirical tests are presented using several estimation methods to deal with heteroscedasticity measurement error and extreme value problems to examine whether results are robust across estimation procedures the hypothesis of complete risk sharing within ethnic groups is rejected however there appears to be some partial insurance performed by individual households with other members of the same ethnic group particularly for the households residing in the regions least likely to have access to formal financial arrangements

the formation of risk sharing networks this paper examines the formation of risk sharing networks in the rural philippines we find that geographic proximity possibly correlated with kinship is a major determinant of mutual insurance links among villagers age and wealth differences also play an important role in contrast income correlation and differences in occupation are not determinants of network links reported network links have a strong effect on subsequent gifts and loans gifts between network partners are found to respond to shocks and to differences in health status from this we conclude that intra village mutual insurance links are largely determined by social and geographical proximity and are only weakly the result of purposeful diversification of income risk the paper also makes a methodological contribution to the estimation of dyadic models

can insurance payouts prevent a poverty trap evidence from randomised experiments in northern kenya index based insurance can have welfare enhancing effects through two pathways by inducing policyholders to change their investment and risk management decisions or by mitigating weather related sh

the digital provide information technology market performance and welfare in the south indian fisheries sector when information is limited or costly agents are unable to engage in optimal arbitrage excess price dispersion across markets can arise and goods may not be allocated efficiently in this setting information technologies may improve market performance and increase welfare between 1997 and 2001 mobile phone service was introduced throughout kerala a state in india with a large fishing industry using microlevel survey data we show that the adoption of mobile phones by fishermen and wholesalers was associated with a dramatic reduction in price dispersion the complete elimination of waste and near perfect adherence to the law of one price both consumer and producer welfare increased

weather shocks coping strategies and consumption dynamics in rural ethiopia summary rural households adopt a broad range of strategies to cope with adverse weather shocks previous studies have examined the effectiveness of individual coping strategies in mitigating the impact of adverse weather shocks but no study to date has presented a comprehensive evaluation of alternative coping strategies we employ household panel data spanning 15 years to estimate the impact of weather shocks on consumption and poverty dynamics in rural ethiopia along with the effectiveness of household coping strategies in alleviating the impact of shocks we find that rainfall increases are positively associated with per adult equivalent consumption while high temperatures are negatively associated with consumption in terms of household coping strategies formal social safety net transfers mitigate the impact of adverse rainfall shocks on consumption and off farm employment mitigates the impact of high temperature shocks simulations suggest that rainfall shocks and formal social safety net transfers significantly influence household poverty dynamics by contrast high temperature shocks and off farm employment have less impact on poverty dynamics the results highlight the need for social protection programs that support existing household coping strategies and that can rapidly respond to weather shocks

mobile money remittances and household welfare panel evidence from rural uganda access to financial services is crucial for development as it enhances resource mobilization needed for productive investment and facilitates consumption smoothing with a vast majority of adult ugandans having no access to formal financial services mobile money is expected to bridge this gap especially in rural areas this financial product allows users to make financial transactions using their mobile phones within five years of its inception in uganda since 2009 the mobile money service has been used by over 35 of the adult population and the rate of penetration is rapidly increasing we investigate its impact on household welfare using panel data covering 846 rural households using a combination of household fixed effects instrumental variable and propensity score matching methods we find a positive and significant effect of mobile money access on household welfare measured by real per capita consumption the mechanism of this impact is the facilitation of remittances user households are more likely to receive remittances receive remittances more frequently and the total value received is significantly higher than that of non user households we attribute this impact on the reduction in transaction transport and time costs associated with mobile phone based financial transactions our results are robust to changes in model specifications and alternative explanations

two moment decision models and expected utility maximization two moment decision models are consistent with expected utility maximization only if the choice set or the agent s preferences are restricted this paper identifies a restriction which is sufficient to ensure this consistency and confirms that it holds in many economic models the implications for economic analysis are then derived two different approaches to representing an agent s preferences over strategies yielding random payoffs are in wide use under the mean standard deviation ms approach the agent is assumed to rank the alternatives according to the value of some function defined over the first two moments of the random payoff while the expected utility eu criterion assumes that the expected value of some utility function defined over payoffs is used instead the fact that there are these two competing approaches has generated a considerable literature some authors are concerned with the advantages and disadvantages of each while others deal with conditions under which the potentially different approaches would yield the same results or at least approximately so space does not

domestic and external factors in the determination of the real interest rate the case of uruguay the high level of the real interest rates in the 1980s is not a phenomenon limited to small countries the united states and other industrial countries in europe have been confronted with a similar experience although numerous studies have aimed to explain the level of real interest rates within the framework of developed countries there is a lack of theoretical and empirical work about the determination of real interest rates in small open developing countries and about the process of transmitting variations in the real interest rates across countries

heterogeneity and tests of risk sharing how well do people share risk standard risk sharing regressions assume that any variation in households risk preferences is uncorrelated with variation in the cyclicality of income i combine administrative and survey data to show that this assumption is questionable risk tolerant workers hold jobs in which earnings carry more aggregate risk the correlation makes risk sharing regressions in the previous literature too pessimistic i derive techniques that eliminate the bias apply them to u s data and find that the effect of idiosyncratic income shocks on consumption is practically small and statistically difficult to distinguish from zero

kinship and financial networks formal financial access and risk reduction kinship networks are beneficial for smoothing consumption and investment but the channels are not well understood we study the financing devices used for consumption and investment by thai households households that are connected to banks achieve significantly better consumption smoothing than unconnected households indirect connections via inter household borrowing are as effective as direct borrowing investment appears to be facilitated by kinship households with kin in the village display reduced sensitivity of investment to income while connections to banks do not significantly reduce sensitivity kin may act as implicit collateral permitting borrowing that would violate repayment constraints in its absence

mobile money agricultural marketing and off farm income in uganda mobile money mm services can contribute to welfare gains in smallholder farm households previous research showed that one important pathway for these mm related welfare gains is through higher remittances received from relatives and friends here the role of other impact pathways is examined especially focusing on agricultural marketing and off farm economic activities the analysis builds on panel data from smallholder coffee farmers in uganda regression models show that the adoption of mm technology has contributed to higher household incomes and consumption levels off farm income gains are identified to be an important pathway also beyond remittances typical off farm income sources are small businesses in trade transport and handicrafts which benefit from novel savings and money transfer opportunities through mm in terms of agricultural marketing mm users sell a larger proportion of their coffee as shelled beans to buyers in high value markets instead of selling to local traders immediately after harvest mm services help to reduce cash constraints and facilitate transactions with buyers from outside local regions in conclusion mm can contribute to rural development through various important pathways analysis of adoption patterns suggests that mm services are socially inclusive

consumption insurance an evaluation of risk bearing systems in low income economies the hypothesis of full risk sharing can be taken to data from low income countries and evaluate formal and informal financial systems in many contexts idiosyncratic risks are high so credit insurance arrangements could be beneficial statistical tests reveal that households in southern india take advantage of these possibilities villages in cote d ivoire and countries in thailand do not do as well the paper includes an empirical description of the devices used to smooth consumption and a theoretical discussion of private information and incentives on ideal operating systems the full information and mechanism design frameworks provide benchmarks for policy analysis

risk sharing between and within families this paper uses the panel study of income dynamics to test whether risk sharing is complete between or within american families the tests accommodate a wide variety in the configuration and availability of family data the test results reject inter as well as intra family full risk sharing even assuming that leisure is endogenous or that leisure and consumption are nonseparable

the unintended consequences of internet diffusion evidence from malaysia abstract can the introduction of the internet undermine incumbent power in a semi authoritarian regime i examine this question using evidence from malaysia where the incumbent coalition lost its 40 year monopoly on power in 2008 i develop a novel methodology for measuring internet penetration matching ip addresses with physical locations and apply it to the 2004 to 2008 period in malaysia using distance to the backbone to instrument for endogenous internet penetration i find that internet exposure accounts for 6 6 points nearly half the swing against the incumbent party in 2008 i find limited evidence of increased turnover and no evidence of an effect on turnout

weather shocks and urban livelihood strategies the gender dimension of household vulnerability in the kumi district of uganda abstractthe teso sub region of uganda suffered numerous weather shocks in the past with devastating food security consequences using household fixed effects and propensity score matching methods we analyse the impact of exposure to drought flood and severe incidence of pests and diseases on household consumption expenditure per adult equivalent for a random sample of households from kumi town council we find that weather shocks reduce consumption by 17 per cent and that the consumption decline is significantly larger among female headed households we also find a higher likelihood of non farm employment borrowing and receiving remittances in order to cope with the shocks

payment mechanisms and antipoverty programs evidence from a mobile money cash transfer experiment in niger abstractcash transfers have become an increasingly important component of social protection policies in both developed and developing countries while such programs are often implemented electronically in developed countries in many developing countries with weak financial infrastructure such transfers are distributed manually resulting in significant costs to program recipients and the public sector alike the introduction of mobile money systems in many developing countries offers new opportunities for distributing cash transfers using data from a randomized experiment of a mobile money cash transfer program in niger we find evidence of benefits of this new system household diet diversity was 9 16 higher among households who received mobile transfers and children ate an additional one third of a meal per day these results can be partially attributed to time savings associated with mobile transfers as program recipients spent less time traveling to and waiting for their transfer they are also

the use of the exchange rate for stabilization a real interest arbitrage model applied to argentina we model interest rate and portfolio determination under the risk of real currency devaluation taking into account risk aversion on the part of investors a simple extension of the friedman savage analysis of consumer behavior under uncertainty to a two period two country setting allows us to explicitly solve for the interest rate premium paid in the risky asset the model is applied to the 1979 1980 argentinean experiment with the pre announced exchange rate empirical results suggest that a safety factor central bank reserves as a fraction of m2 is closely related to the net ex ante and ex post arbitrage differentials in favor of argentina relative to the united states jel d8

mobile money financial inclusion and development a review with reference to african experience we survey literature on mobile money and its contribution in promoting financial inclusion and development with a focus on sub saharan africa we use taxonomic descriptive and analytical methods to evaluate the state of knowledge in the area we analyse how mobile technology in general may contribute to economic development and financial inclusion in theory and practise we explain the mechanics of mobile money using kenya s m pesa as a canonical example and consider whether the literature has fully established the potential economic impact of mobile money especially its contribution to financial inclusion we also consider market structure pricing and regulatory implications of mobile money we conclude by highlighting issues that require further investigation the take up of mobile money mobile money and financial inclusion substitutability between mobile money and conventional finance and regulatory structures for institutions providing mobile money services

full insurance in the presence of aggregate uncertainty this paper tests implications of full consumption insurance the object is to determine how much mileage can be obtained from a model with complete markets with such features as private information or liquidity constraints omitted the implication exploited is that individual consumption responds to aggregate risk but not to idiosyncratic risk the test involves regressing the change in household consumption onto the change in aggregate consumption and other right hand side variables such as the change in household income and change in employment status all variables other than the change in aggregate consumption are predicted to be insignificant in explaining the change in household consumption with observations on consumption and income for 10 695 households from the consumer expenditure survey the results are mixed the results for one specification exponential utility are mostly consistent with full consumption insurance the results for the other specification power utility are not

pretending to be poor borrowing to escape forced solidarity in cameroon abstractfrom field observations of credit cooperatives in cameroon we find that 19 of the loans taken are fully collateralized by savings held in the same institutions this behavior is costly to the borrower as it represents a net interest payment of about 24 per year while traditional explanations may partly explain this behavior interviews with members of the cooperatives suggest the following new rationale members resort to borrowing to signal to friends and relatives that they are poor and do not have savings available by doing so they can avoid requests for financial help we develop a signaling model to analyze the conditions under which this behavior is an equilibrium outcome

inferring informal risk sharing regimes evidence from rural tanzania abstract this paper studies informal risk sharing regimes in a unified framework by examining households intertemporal consumption behavior we exploit a theoretically consistent link between interest rates and cross sectional consumption moments to test alternative risk sharing models without requiring data on interest rates or assuming a restriction to eliminate the need for such data which are often unavailable in developing economies we specify tests that allow us to distinguish among models even with temporal dependence in income shocks using data from rural tanzania we find that the consumption pattern is consistent with the self insurance regime and that risk aversion varies substantially across districts imposing a strict condition on interest rates as often done in prior literature misses their intertemporal heterogeneity and biases the estimation of risk aversion

external shocks financial reforms and stabilization attempts in uruguay during 1974 1983 abstract this paper interprets and evaluates uruguay s reforms emphasizing the outcome of financial reforms and attempts to bring down inflation it is shown that domestic interest rate deregulation and the removal of prohibition towards holding dollar denominated assets led to a rise in the ratio of financial assets in gdp and to a shift towards dollar denominated assets causes of the persistent and large spread between peso and dollar interest rates adjusted for the preannounced rate of devaluation tablita are examined the discussion of the stabilization program during 1979 1982 and its aftermath in 1983 shows that setting the tablita at less than the difference between internal and external inflation led to severe imbalances because of remaining redundant protection and price stickness the real exchange rate appreciated sharply for a prolonged period and the trade balance widened until the stabilization episode ended with capital flight when doubts set in about the sustainability of the tablita

a simple test of consumption insurance are consumers effectively insured against idiosyncratic shocks to income or wealth either by formal institutions such as charities private insurance and government programs or by informal mechanisms such as gifts and loans from relatives friends and neighbors under full insurance consumption growth should be cross sectionally independent of idiosyncratic variables that are exogenous to consumers this proposition is tested by cross sectional regressions of consumption growth on a variety of exogenous variables full insurance is rejected for long illness and involuntary job loss but not for spells of unemployment loss of work due to strike and an involuntary move

risk sharing in private information models with asset accumulation explaining the excess smoothness of consumption we study testable implications for the dynamics of consumption and income of models in which first best allocations are not achieved because of a moral hazard problem with hidden saving we show that in this environment agents typically achieve more insurance than that obtained under self insurance with a single asset consumption allocations exhibit excess smoothness as found and defined by campbell and deaton 1989 we argue that excess smoothness in this context is equivalent to a violation of the intertemporal budget constraint considered in a bewley economy with a single asset we also show parameterizations of our model in which we can obtain a closed form solution for the efficient insurance contract and where the excess smoothness parameter has a structural interpretation in terms of the severity of the moral hazard problem we present tests of excess smoothness applied to u k microdata and constructed using techniques proposed by hansen roberds and sargent 1991 to test the intertemporal budget constraint our theoretical model leads us to interpret them as tests of the market structure faced by economic agents we also construct a test based on the dynamics of the cross sectional variances of consumption and income that is in a precise sense complementary to that based on hansen roberds and sargent 1991 and that allows us to estimate the same structural parameter the results we report are consistent with the implications of the model and are internally coherent

policy fundamentals interest rates differential and expected devaluation in the presence of an active crawling peg system abstract one of the most interesting theoretical issues that comes up from the analysis of the tablita period in the southern cone economies argentina chile and uruguay is the interpretation of why interest rates on domestic currency loans were much higher than the rate on foreign currency loans adjusted for devaluation of the domestic currency even though the rate of devaluation was set by the monetary authorities six months ahead and published in a little table tablita this was particularly puzzling in the case of uruguay which had practically perfect capital mobility we show that the reason rational economic agents were willing to pay high domestic interest rates rather than borrowing in foreign currency was that they realized that policy fundamentals were inconsistent with the sustainability of the exchange rate policy using data for uruguay we show that a second systematic component of expectations of devaluation is what we call the policy risk factor and modeled as a function of the fiscal and monetary variables jel 41 31

group formation in risk sharing arrangements we study informal insurance within communities explicitly recognizing the possibility that subgroups of individuals may destabilize insurance arrangements among the larger group we therefore consider self enforcing risk sharing agreements that are robust not only to single person deviations but also to potential deviations by subgroups however such deviations must be credible in the sense that the subgroup must pass exactly the same test that we apply to the entire group it must itself employ some self enforcing risk sharing agreement we observe that the stability of subgroups is inimical to the stability of the group as a whole two surprising consequences of this analysis are that stable groups have uniformly bounded size a result in sharp contrast to the individual deviation problem and that the degree of risk sharing in a community is generally non monotonic in the level of uncertainty or need for insurance in the community

health shocks and consumption smoothing evidence from indonesia abstractepisodes of uninsured illness can seriously compromise a household s well being this article provides further evidence on the consequences of illness episodes on earnings and consumption in indonesia we exploit a rich panel data set that allows us to combine fixed effects and instrumental variables to address biases associated with the endogeneity of illness using deteriorations in physical functioning to measure illness for a sample of prime age individuals we find that earnings are significantly reduced however the effects on consumption are relatively small and statistically insignificant in addition we explore informal mechanisms that households may be using to smooth out the consequences of these episodes in particular we study whether households deplete liquid assets or receive transfers from noncoresident kin transfers are responsive to illness but there is no evidence of asset depletions overall our findings suggest some ability to smooth the income effects of illness on aver

an analysis of sample attrition in panel data the michigan panel study of income dynamics by 1989 the michigan panel study on income dynamics psid had experienced approximately 50 percent sample loss from cumulative attrition from its initial 1968 membership we study the effect of this attrition on the unconditional distributions of several socioeconomic variables and on the estimates of several sets of regression coefficients we provide a statistical framework for conducting tests for attrition bias that draws a sharp distinction between selection on unobservables and on observables and that shows that weighted least squares can generate consistent parameter estimates when selection is based on observables even when they are endogenous our empirical analysis shows that attrition is highly selective and is concentrated among lower socioeconomic status individuals we also show that attrition is concentrated among those with more unstable earnings marriage and migration histories nevertheless we find that these variables explain very little of the attrition in the sample and that the selection that occurs is moderated by regression to the mean effects from selection on transitory components that fade over time consequently despite the large amount of attrition we find no strong evidence that attrition has seriously distorted the representativeness of the psid through 1989 and considerable evidence that its cross sectional representativeness has remained roughly intact

networks in economic development this chapter surveys the implications of some studies in network economics research for economic development we focus on information flow and risk sharing two topics where work in theory empirics and policy analysis have been especially intensive and complementary in analysing information we distinguish models of information diffusion and aggregation highlight how different models imply very different guidance regarding the right way to seed information in discussing risk sharing we look at the key frictions that impede efficient informal insurance and some potential unintended consequences when policymakers intervene to help throughout we stress practical insights that can be used with limited measurement of the details of networks

deja vu all over again the mexican crisis and the stabilization of uruguay in the 1970s abstract comparing the 1978 1982 uruguayan stabilization with the 1990 1994 mexican experience reveals that exchange rate based stabilization tends to increase the economy s vulnerability to unexpected shocks an exchange rate rule with full capital mobility can only succeed if compatible financial policies are strictly adhered to even when severe negative shocks take place and if reliance on persistent capital inflows is not essential this requires monetary restraint even under serious recessionary conditions and tight fiscal policies to moderate interest rates the epilogues of both experiences demonstrate that abandoning the exchange rate rule in the wake of a shock even if inevitable makes future stabilization more difficult

does mobile money use increase firms investment evidence from enterprise surveys in kenya uganda and tanzania private investment can be an important engine of economic growth in east african countries which despite recent growth rates are still plagued with adverse economic conditions against this backdrop there has been substantial penetration of mobile money moving beyond simple person to person exchanges toward adoption by private firms this study explores whether there is a relationship between firm adoption of mobile money and firm investment using firm level data that are nationally representative of the private sector in three east african countries kenya tanzania and uganda a positive relationship is found between mobile money use and the probability of a firm s purchase of fixed assets this relationship is attributed to reduced transaction costs increased liquidity and increased credit worthiness associated with the use of mobile phone financial services

endogenous emergence of credit markets contracting in response to a new technology in ghana abstract access to credit is important for the productivity and overall welfare of farmers in developing countries we present a theoretical framework which shows that a change in the mode of shipping from air to sea in the ghanaian pineapple industry made it profitable for pineapple exporters to provide myopic farmers with both in kind loans to improve productivity and cash loans for consumption smoothing despite being unable to monitor farmers or enforce repayment the innovative theoretical result is that providing farmers with additional cash loans can enforce greater input use without compromising repayment we provide evidence in the form of a case study documenting the dramatic rise of informal credit through contract farming after the switch to sea freight between 1996 and 2001 using this anecdote we argue that credit arrangements can arise spontaneously absent non market interventions to meet market needs even in the absence of proper legal protections for creditors

insuring consumption against illness one of the most sizable and least predictable shocks to economic opportunities in developing countries is major illness we investigate the extent to which families are able to insure consumption against major illness using a unique panel data set from indonesia that combines excellent measures of health status with consumption information we find that there are significant economic costs associated with major illness and that there is very imperfect insurance of consumption over illness episodes these estimates suggest that public disability insurance or subsidies for medical care may improve welfare by providing consumption insurance

mobile phones and economic development in rural peru the authors estimate the effects of mobile phone coverage on different measures of economic development the authors exploit the timing of mobile coverage at the village level merging it with a village level panel dataset for rural peru the main findings suggest that mobile phone expansion has increased household real consumption by 11 percent reduced poverty incidence by 8 percentage points and decreased extreme poverty by 5 4 percentage points moreover those benefits appear to be shared by all covered households regardless of mobile ownership

consumption risk sharing in social networks we develop a model of informal risk sharing in social networks where relationships between individuals can be used as social collateral to enforce insurance payments we characterize incentive compatible risk sharing arrangements and obtain two results 1 the degree of informal insurance is governed by the expansiveness of the network measured by the number of connections that groups of agents have with the rest of the community relative to group size twodimensional networks where people have connections in multiple directions are su ciently expansive to allow very good risk sharing we show that social networks in peruvian villages satisfy this dimensionality property thus our model can explain townsend s 1994 puzzling observation that village communities often exhibit close to full insurance 2 in second best arrangements agents organize in endogenous risk sharing islands in the network where shocks are shared fully within but imperfectly across islands as a result network based risk sharing is local socially closer agents insure each other more

income fluctuation and asymmetric information an example of a repeated principal agent problem we examine a simple repeated principal agent model with discounting there are a risk averse borrower with an unobservable random income and a risk neutral lender the efficient contract is characterized it tends to the first best constant consumption contract as the discount factor tends to one and the time horizon extends to infinity if the time horizon is infinite and the contract is legally enforceable the borrower s utility becomes arbitrarily negative with probability one if the borrower has constant absolute risk aversion consumption is transferred between any two states at a constant interest rate which is less than the rate of time preference

risk sharing and information in village economies arrangements for achieving efficient risk sharing vary depending on the information available to agents in the economy the usual euler equation restricts efficient allocations in an economy which obeys the permanent income hypothesis while efficient allocations in an economy with private information and long term contracts satisfy a symmetric restriction but not the euler equation full insurance arrangements are unique in that they satisfy both restrictions we look at an environment in which it seems likely that long term contracts play a role in mitigating the effects of private information three village economies in south india the evidence that consumption allocations satisfy the private information restriction is quite strong for households in two of the three villages the evidence for the third village suggests that while consumption for some households satisfies the private information restrictions other households consumption obey the permanent income hypothesis

are remittances insurance evidence from rainfall shocks in the philippines several facts motivate this study first life in developing countries is prone to many kinds of risk such as crop and income loss due to natural disasters weather insect infestations and fire and civil conflict second international migration and remittance flows are substantial and growing between 1965 and 2000 individuals living outside their country of birth grew from 2 2 to 2 9 percent of the world population totaling 175 million people in 2000 the remittances that these migrants send to their countries of origin are an important but poorly understood type of international financial flow this article examines a mechanism for coping with shocks ex post on which previous micro level studies have not focused remittances from family members overseas at the international level it is commonly posited that remittance flows from overseas buffer economic shocks in migrants home countries but there have been relatively few empirical tests of this claim with micro level household data related research on the role of domestic migration in pooling risk within extended families includes lucas and stark 1985 rosenzweig and stark 1989 and paulson 2000

consumption smoothing migration and marriage evidence from rural india a significant proportion of migration in low income countries particularly in rural areas is composed of moves by women for the purpose of marriage we seek to explain these mobility patterns by examining marital arrangements among indian households in particular we hypothesize that the marriage of daughters to locationally distant dispersed yet kinship related households is a manifestation of implicit interhousehold contractual arrangements aimed at mitigating income risks and facilitating consumption smoothing in an environment characterized by information costs and spatially covariant risks analysis of longitudinal south indian village data lends support to the hypothesis marriage cum migration contributes significantly to a reduction in the variability of household food consumption farm households afflicted with more variable profits tend to engage in longer distance marriage cum migration the hypothesized and observed marriage cum migration patterns are in dissonance with standard models of marriage or migration that are concerned primarily with search costs and static income gains

computing productivity firm level evidence we explore the effect of computerization on productivity and output growth using data from 527 large us firms over 1987 1994 we find that computerization makes a contribution to measured productivity and output growth in the short term using one year differences that is consistent with normal returns to computer investments however the productivity and output contributions associated with computerization are up to five times greater over long periods using five to seven year differences the results suggest that the observed contribution of computerization is accompanied by relatively large and time consuming investments in complementary inputs such as organizational capital that may be omitted in conventional calculations of productivity the large long run contribution of computers and their associated complements that we uncover may partially explain the subsequent investment surge in computers in the late 1990s

risk sharing and transactions costs evidence from kenya s mobile money revolution we explore the impact of reduced transaction costs on risk sharing by estimating the effects of a mobile money innovation on consumption in our panel sample adoption of the innovation increased from 43 to 70 percent we find that while shocks reduce consumption by 7 percent for nonusers the consumption of user households is unaffected the mechanisms underlying these consumption effects are increases in remittances received and the diversity of senders we report robustness checks supporting these results and use the four fold expansion of the mobile money agent network as a source of exogenous variation in access to the innovation jel e42 g22 o16 o17 z13 in developing countries informal networks provide an important means by which individuals and households share risk though the insurance they provide is often incomplete economists have proposed a number of reasons for this incompleteness including information asymmetries which manifest in problems of moral hazard and limited commitment both of which induce positive correlations between realized income and consumption in this article we emphasize a complementary source of incompleteness transaction costs literally the costs of transferring resources between individuals we test the impact of transaction costs on risk sharing by analyzing data from a large panel household survey that we designed and administered in kenya over a three year period to capture the expansion of mobile money this financial innovation has allowed individuals to transfer purchasing power by simple short messaging service sms technology and has dramatically reduced the cost of sending money across large distances mobile money is a recent innovation in developing economies one of the first and most successful examples to date is kenya s m pesa 1 in just four years after its

on the long run implications of repeated moral hazard abstract this paper analyzes the effects of moral hazard on long run consumption or utility given exponential utility it is shown that the utility of those with unobservable endowments becomes arbitrarily negative as long as any positive fraction of otherwise identical agents have observable endowments next it is shown that assuming a finite number of agents results in essentially the same outcomes as with a continuum of agents finally it is shown that the key characteristic determining whether the utility of almost all agents becomes arbitrarily low is whether lim c u c is bounded away from zero journal of economic literature classification numbers d30 d31 d80 d82