Risk pooling between households and risk-coping measures in developing countries: Evidence from rural Bangladesh

Abstract

In this study, I examine whether households take the following potential risk-coping measures during economic hardships: selling off livestock and other assets, increasing the number of working household members, receiving private transfers, and getting loans with interest and without interest. I compare the households' behavior during economic hardships across three groups: households in single-household baris, households having a relative in the bari, and households having only nonrelatives in the bari. I find evidence that, during an economic hardship, households in single-household baris sell off their assets, including livestock, and obtain interest-free loans to overcome the hardship. Regarding the other two groups of households, I find little evidence that they do anything differently during an economic hardship than they do during a normal time. Taking part in a mutual insurance network of neighbors appears to reduce their need for any special measures during economic hardships. The remainder of this article is organized as follows. Section II describes the data used for this study, the Matlab Health and Socioeconomic Survey (MHSS). Section III tests whether risks are pooled among villagers, between unrelated and related households in the neighborhood, and between related households living in different villages. Section IV examines the measures households take to overcome economic hardships and how the choice of measures is affected by the neighborhood network they belong to. Section V concludes the article. © 2006 by The University of Chicago. All rights reserved.