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Vulnerability and Responses to Risk in Rural India

Raghbendra Jha (), Woojin Kang, Hari Nagarajan () and Kailash Pradhan ()

ASARC Working Papers from The Australian National University, Australia South Asia Research Centre

Abstract: Using Vulnerability as Expected Utility (VEU) analysis that permits the decomposition of household vulnerability into its components on a unique data set this paper demonstrates that in rural India household vulnerability is most explained by poverty and idiosyncratic components. So far as risk coping strategies go households rely heavily on informal instruments such as their own saving, transfers or capital depletion. However, they also try to cope with covariate risks by participating in government programmes. Further, household consumption is highly covariate with income. This implies that existing informal insurance instruments are not sufficient to protect household consumption against income shocks. Government sponsored coping strategies reduce the idiosyncratic and risk component of vulnerability. Hence, an important policy implication of our analysis is that the government should provide readily accessible and well targeted public safety nets. The existing informal strategy is not very effective as a consumption insurance mechanism. Although the government coping programme is found to reduce vulnerability access to such programmes is constrained. Expansion of government sponsored coping programmes is likely to protect households effectively from negative shocks.

Keywords: Vulnerability; Poverty; Covariate and Idiosyncratic shocks; REDS data; India (search for similar items in EconPapers)
JEL-codes: C23 C25 C31 I32 (search for similar items in EconPapers)
Pages: 19
Date: 2012
New Economics Papers: this item is included in nep-agr, nep-dev and nep-ias
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Related works:
Working Paper: Vulnerability and Responses to Risks in Rural India (2013) Downloads
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