economic shocks wealth and welfare the immediate effects of the asian crisis on the well being of indonesians are examined using the indonesia family life survey an on going longitudinal household survey there is tremendous diversity in the effect of the shock for some households it was devastating for others it brought new opportunities a wide array of mechanisms were adopted in response to the crisis households combined to more fully exploit benefits of scale economies in consumption labor supply increased even as real wages collapsed households reduced spending on semi durables while maintaining expenditures on foods rural households used wealth particularly gold to smooth consumption

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

environmental protection policies and the structure of the us economy the policy of regulation has been used to abate pollution in the usa however a number of other measures such as a tax cum subsidy program and taxes on polluters have been frequently suggested in the literature in this paper the impact of these policies on the structure of pices production income distribution and the input requirements of labour and capital is determined the input output methodology is used for this purpose the direct and primary input requirement coefficients of the 1971 input output table are adjusted to reflect the input requirements of pollution abatement technology the policy of regulation is found to be more effective in controlling pollution than the tax cum subsidy program though the latter will create more jobs the reason for this is that the tax cum subsidy program is not as successful as the policy of controls or taxes on polluters in steering consumption away from the polluting industries

pollution control and inputs to production abstract the primary concern of this paper is to identify the inputs required for air water and solid waste pollution abatement in the united states industry level data on pollution abatement expenditures in 1976 are decomposed into expenditures on various intermediate inputs and on two primary inputs labor and capital the 1971 input output table is adjusted to reflect the input needs of pollution abatement technology this revised direct input coefficients matrix is used to derive the gross output and primary input requirements of the 1971 final bill of goods

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

computing multi period information constrained optima this paper presents a detailed theoretical derivation and justification for methods used to compute solutions to a multi period including infinite period continuum agent unobservedeffort economy actual solutions are displayed illustrating cross sectional variability in consumption and labour effort in the population at a point in time and variability for a typical individual over time the optimal tradeoff between insurance and incentives is explored and the issue of excess variability is addressed by consideration of the analogue full information economy and various restricted contracting regimes

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

measurement and mismeasurement of social indicators measurement of social indicators is not without its pitfalls however and drawing conclusions based on comparisons of national aggregates is fraught with difficulties especially when data sources are sketchy the paper in that issue make a compelling argument for investing in improving the quality and frequency of data collection efforts however even when good survey data do exist serious and often quite subtle issues of comparability and measurmenet still abound this abstract was borrowed from another version of this item

the effect of prime age adult mortality on household composition and consumption in rural ethiopia abstract using panel data from ethiopia covering 1994 1997 we estimate the impact of prime age adult mortality on household composition household expenditures and dietary diversity we employed propensity score matching with a difference in difference estimator to control for endogeneity of mortality to the outcomes of interest households losing a productive adult did not replenish the lost labor regardless of economic status sex or status of the deceased adult with the exception of non poor households adult mortality resulted in increased dependency ratios but did not adversely affect households expenditure patterns total food and non food expenditures regardless of the sex and position of the deceased and the economic status of the households although food expenditures were protected a decline in dietary diversity especially among the poorest households reflected increased nutrition insecurity associated with adult mortality

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

short and long run incidence of protection the case of madagascar the effects of trade policy interventions within a general equilibrium framework are examined the short and long term incidence of protection for a particular low income developing country were measured using time series data on relative prices for the period 1974 84 the results based on cointegration techniques establish that nominal protection of importables was substantially lower than true protection that true protection was lower in the long run that in the short term and that the adjustment to equilibrium relative prices was fairly rapid in this period

adult mortality and consumption growth in the age of hiv aids the authors use a 13 year panel of individuals in tanzania to assess how adult mortality shocks affect both short and long run consumption growth of surviving household members using unique data which tracks individuals from 1991 to 2004 they examine consumption growth controlling for a set of initial community household and individual characteristics the effect is identified using the sample of households in 2004 which grew out of baseline households the authors find robust evidence that an affected household will see consumption drop 7 percent within the first five years after the adult death with high growth in the sample over this time period this creates a 19 percentage point growth gap with the average household there is some evidence of persistent effects of these shocks for up to 13 years but these effects are imprecisely estimated and not significantly different from zero the impact of female adult death is found to be particularly severe

intra industry trade and the shifting of protection across sectors abstract recent work on commercial policy has focussed on the incidence of protection across sectors this work has focussed on the relative price effects of intervention and has been developed in a setting of inter industry trade this paper focusses on the incidence of protection in a setting of intra industry trade a three sector general equilibrium model is developed and incidence is explored in a variety of settings the analysis suggests that the non tradeable sector may bear the major burden of protection in a setting of intra industry trade

income smoothing and consumption smoothing one way that risk averse households protect consumption levels is to borrow and use insurance mechanisms another way common in low income economies is to diversify economic activities and make conservative production and employment choices households thus tend toward limiting exposure only to shocks that can be handled with available credit and insurance typically both types of mechanisms are studied independently but much more can be learned by studying them together first we obtain a more complete picture of risks costs and insurance possibilities second it opens the way to considering biases in standard tests of credit and insurance

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

does prime age mortality reduce per capita household income evidence from rural zambia summary this paper evaluates the impact of prime age mortality on per adult equivalent incomes of surviving household members in rural zambia the analysis uses difference in difference matching techniques and controls for spillover effects by excluding households from the control group if members departed or joined for reasons related to prime age mortality the latter is required because per adult equivalent incomes of non afflicted households may be indirectly affected e g by hosting orphans we find evidence of negative spillover effects on non afflicted households however the death of a prime age member has no significant short run effect on per adult equivalent income of afflicted households

input output simulations of energy environment economy interactions in the uk this paper shows how a number of the complex interrelationships between energy environment and economic welfare can be investigated with the aid of a 10 sector input output i o model of the uk with pollution emission coefficients and a european sulphur deposition vector the paper reviews relevant past applications of i o analysis in the energy environment area and describes the endam program and its operation it is used to simulate the effects of a variety of policies and possibilities not only through changes in exogenous variables final demand and income taxes and transfers but also through changes in the structural matrices and their coefficients in each case the full effects direct indirect and income induced can be traced and the changes in comparative static equilibrium values discovered in this way policy issues connected with energy use and environmental impacts employment and economic welfare have been investigated

consumption smoothing and hiv aids the case of two communities in south africa abstract hiv aids threatens to overstretch the already frail informal safety nets in countries heavily affected by the epidemic potentially making it difficult for households with hiv positive members to keep up appropriate consumption levels when experiencing shocks these households may in addition face exclusion from informal insurance networks because of widespread stigmatization surprisingly the resilience of informal networks to hiv related shocks and their uncertain worth for afflicted households in particular have not been empirically tested to date using 3 years of a novel panel data set from two poor south african communities experiencing hiv related illnesses and deaths we investigate the ability of households to insure their consumption we find little evidence that affected households show an extra propensity to consume out of income changes which indicates that these households can rely on informal insurance to the same degree as their nonaffected peers however on the basis of the

is consumption insured against illness evidence on vulnerability of households to health shocks in rural ethiopia abstract low and volatile incomes and absence of well developed financial markets make consumption smoothing an important issue in low income countries based on the theory of full insurance and using 2 years of panel data this study examines the impact of illness on the consumption of rural households and the capacity of existing risk sharing mechanisms in insuring consumption against health shocks in the rural areas of ethiopia the results show that illness has a statistically significant negative impact on the stability of consumption and the capacity of households or existing intra and interhousehold risk sharing arrangements in insuring consumption against illness varies across different consumption items the regression results show that the hypothesis of consumption insurance cannot be rejected in the case of total food consumption implying that basic items that come from own production and from external sources gifts are better insured and insensitive to the illness of the head however the

risk and insurance in village india comment the protection of poor households in high risk agrarian economies from shocks to their incomes has often been seen as a compelling motive for various forms of policy intervention including transfers of cash or food credit subsidies and public employment schemes for a survey see lipton and ravallion 1995 the desirability of such safety net policies clearly depends on how well pre existing risk sharing arrangements work while it is commonly thought that without effective policy intervention rural households are vulnerable to village wide shocks such as adverse prices or poor rains it is less clear to what extent risk sharing institutions within the village mitigate the effects of idiosyncratic income risk stemming for instance from ill health or localized crop damage 2 several recent papers have used household level data to implement tests of risk sharing that might inform such concerns 3 these tests are based on the proposition that with perfect risk sharing consumption at the household level should be insured against idiosyncratic risks and thus depend solely on the realization of the aggregate risk wilson 1968 diamond 1967 townsend 1994 tests this implication of perfect intra village risk sharing using longitudinal household data on consumptions and incomes for three villages in india he reports that the full insurance hypothesis provides a surprisingly good benchmark in that household consumptions co move and do not appear to be much influenced by contemporaneous own income our aim here is to examine the robustness of this potentially important finding we have two main concerns the first is that the specification townsend adopts potentially biases his test towards the null hypothesis of full insurance because it yields inconsistent estimates of the key test parameter under a plausible alternative we therefore estimate a different specification that generates consistent estimates under both the null and the alternative our second concern is that a particular form of measurement error in the consumption data townsend uses may have further biased his results toward the null hypothesis of full insurance to address this concern we use an instrumental variables procedure when we implement the test of consumption insurance with townsend s consumption data we also re estimate the test equations with a measure of consumption derived from the same underlying primary data by an alternate method finally townsend reports 1discussions with robert townsend stimulated our interest in this investigation the staff of the

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

household choices in equilibrium this paper is an empirical investigation of equilibrium restrictions on household consumption and male labor supply it exploits a simple factor structure rationalized by two assumptions that household allocations are pareto optimal and that the labor market is competitive the paper estimates household preferences and tests how well this parsimonious factor structure represents panel data on married couples and time series data on asset returns most of the estimates are roughly comparable to those found in previous work no evidence against the simple factor representation is found and the intertemporal capital asset pricing model is not rejected copyright 1990 by the econometric society

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

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

vulnerability seasonality and poverty in ethiopia most studies examining the dynamics of welfare have found large fluctuations in consumption over relatively short periods suggesting substantial short run movements in and out of poverty the consequence is that cross section poverty research may not be able to identify the poor in this study we explore this short run variability further we use a data set on a panel of 1450 households in different communities in rural ethiopia surveyed thrice over 18 months on average year to year poverty is very similar however we find high variability in consumption and poverty over the seasons and year by year econometric analysis suggests that consumption is affected by idiosyncratic and common shocks including rainfall and household specific crop failure while households respond to seasonal incentives related to changing labour demand and prices the results imply that a larger number of households are vulnerable to shocks than implied by the standard poverty statistics while some of the non poor in the

are the poor less well insured evidence on vulnerability to income risk in rural china the authors test how well consumption is insured against income risk in a panel of sampled households in rural china they estimate the risk insurance models by generalized method of moments treating income and household size as endogenous insurance exists for all wealth groups although the hypothesis of perfect insurance is universally rejected those in the poorest wealth decile are the least well insured with 40 percent of an income shock being passed on to current consumption by contrast consumption by the richest third of households is protected from almost 90 percent of an income shock the extent of insurance in a given wealth stratum varies little between poor and nonpoor areas

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

saving in developing countries theory and review in the literature on economic development much of the interest in saving has been focused on the relation between saving and growth but saving is not only about accumulation it is about smoothing consumption in the face of volatile and unpredictable income and helping to ensure the living standards of poor people whose lives are difficult and uncertain this paper develops a model of households which cannot borrow but which accumulate assets as a buffer stock to protect consumption when incomes are low such households dissave as often as they save do not accumulate assets over the long term and have on average very small asset holdings but their consumption is markedly smoother than their income much of the evidence is as consistent with this view of saving as it is incosistent with standard views of smoothing over the life cycle and with explanations of the link between saving and growth in terms of life cycle saving behavior consumption smoothing is also a useful way of thinking about government policy where volatility in the world prices of taxed commodities can generate sharp fluctuations in government revenues as well as reallocations of revenue between the private and public sectors many important policy issues in developing countries hinge on issues of consumption and smoothing and research on these issues is currently likely to be more productive than work on the relation between saving and growth

on repeated moral hazard with discounting in this paper we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future we show that there is a stationary representation of the optimal contract when the agent s conditional discounted expected utility is used as a state variable this representation reduces the multi period problem to a static variational problem which can be analyzed using standard variational techniques this reduction is used to obtain several properties of the contract

true protection and the real exchange rate in a capital rich developing country some evidence for saudi arabia this paper investigates how alternative measures of the real exchange rate respond to trade policy and terms of trade changes it employs a modelling framework which endogenises the price of non tradeable goods and applies the model to price and real exchange rate data for saudi arabia for the period 1982 92 the results show that the popular propositions about the response of the real exchange rate to terms of trade or trade policy changes do not necessary hold this is a consequence of the measure of the real exchange rate utilized rather than a product of saudi arabia s capital richness