Studies of risk in developing economies have focused on consumption fluctuations as a measure of the value of insurance. A common view in the literature is that the welfare costs of risk and benefits of social insurance are small if income shocks do not cause large consumption fluctuations. We present a simple model showing that this conclusion is incorrect if the consumption path is smooth because individuals are highly risk averse. Hence, social safety nets could be valuable in low-income economies even when consumption is not very sensitive to shocks. © 2006 Elsevier B.V. All rights reserved.
CITATION STYLE
Chetty, R., & Looney, A. (2006). Consumption smoothing and the welfare consequences of social insurance in developing economies. Journal of Public Economics, 90(12), 2351–2356. https://doi.org/10.1016/j.jpubeco.2006.07.002
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