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http://ssrn.com/abstract=620742
Consumption Smoothing, Livestock, Insurance and Drought in Rural Burkina Faso
Harounan Kazianga
Oklahoma State University – Stillwater
Christopher R. Udry
Yale University – Economic Growth Center
November 2004
Yale University Economic Growth Center Discussion Paper No. 898
Abstract:
This paper explores the extent of consumption smoothing between 1981 and 1985 in rural Burkina Faso. In particular, we examine the extent to which livestock, grain storage and interhousehold transfers are used to smooth consumption against income risk. The survey coincided with a period of severe drought, so that the results provide direct evidence on the effectiveness of these various insurance mechanisms when they are the most needed. We find evidence of little consumption smoothing. In particular, there is almost no risk sharing, and households rely almost exclusively on self-insurance in the form of adjustments to grain stocks to smooth out consumption. The outcome, however is far from complete smoothing. Hence the main risk-coping strategies, which are hypothesized in the literature (risk sharing and buffer stock), were not effective during the survey period.
Keywords: Livestock, consumption smoothing, permanent income hypothesis, precautionary saving, risk sharing
