Risk-Sharing and Land Misallocation

Davide Pietrobon and Alessandro Ruggieri
Authors registered in the RePEc Author Service: Eva Ranehill

No 2024:7, Working Papers from Lund University, Department of Economics

Abstract: We study the impact of incomplete consumption risk-sharing on land misallocation in rural economies. We develop a general equilibrium model of land cultivation choices, where heterogeneous agricultural households face idiosyncratic output shocks and insure themselves by participating in a risk-sharing arrangement. Incomplete insurance distorts households’ choices, leading them away from maximizing expected incomes and resulting in land misallocation. Using the latest ICRISAT panel data from rural India, we quantify the losses attributable to limited risk-sharing. Completing insurance markets leads to output and welfare gains of 19% and 29%, respectively. Improving the functioning of consumption insurance markets within an otherwise undistorted economy can yield gains comparable to those achieved by removing distortions in factor markets.

Keywords: Misallocation; risk-sharing; agriculture; productivity; welfare (search for similar items in EconPapers)
JEL-codes: D52 D61 O11 Q12 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2024-09-18
New Economics Papers: this item is included in nep-dem, nep-hea and nep-inv
References: Add references at CitEc
Citations:

Downloads: (external link)
https://lucris.lub.lu.se/ws/portalfiles/portal/195442851/WP24_7 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2024_007

Access Statistics for this paper

More papers in Working Papers from Lund University, Department of Economics School of Economics and Management, Box 7080, S-22007 Lund, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Iker Arregui Alegria ().