Risk-sharing in Rural Pakistan

In: The Pakistan development review: PDR, Band 35, Heft 1, S. 23-48

Abstract

Risk-sharing is a fundamental form of economic behaviour. It
can occur through formal insurance markets, informal family
arrangements, community support, legal institutions (such as
bankruptcy), or government tax-transfer programmes. Whatever the
mechanism used to share risk, the extent of risk mitigation can greatly
influence the welfare of all members of society. Understanding the
degree of risk-pooling in society is important for policy-makers, since
insufficient risk pooling may provide a basis for government
intervention. Alternatively, if risks are being pooled adequately
without the help of the government, government risk-sharing may be
redundant. This study explores the implications of the risk-sharing
model, namely, that households which pool risks, either through formal
markets or informal personal arrangements, experience correlated changes
in their consumption through time. It conducts tests of within-village,
across-village, within-district, and across-district risksharing using a
new Pakistani panel data set—the Pakistan Food Security Management
Survey—collected by the International Food Policy Research Institute
(IFPRI), Washington, D. C. Unlike studies for other Less Developed
Countries (LDCs), these tests find very little or almost no evidence of
risk-sharing among unrelated individuals within- and across-villages in
the rural sector of Pakistan.