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Vulnerability and Responses to Risks 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 ARIS/REDS data set for 2006 for rural India this paper models household vulnerability as expected utility and its components. We conclude, first, that between the years 1999 and 2006 household vulnerability is most explained by poverty and idiosyncratic components. Second, for risk coping strategy, households rely heavily on informal instrument such as their own saving, transfers or capital depletion. However, they also try to cope with covariate risks by participating in government programmes. Third, household consumption is highly covariate with income. This implies that existing informal insurance instruments are not sufficient to protect household consumption against income shocks. Fourth, a coping strategy using government programmes has vulnerability (idiosyncratic risk component) reducing effects. Finally, there is a strong case for the establishment of strong safety nets in Indian villages. The existing informal strategy is inadequate as a consumption insurance mechanism whereas government programmes are found to reduce vulnerability induced by idiosyncratic shocks. However, access to such programmes is highly constrained. The expansion of suitably designed government programs has the potential of protecting households efficiently from negative shocks.

Keywords: Vulnerability as Expected Utility; Coping Strategy; Economic Growth; Social Safety nets (search for similar items in EconPapers)
JEL-codes: D12 D18 I32 I38 (search for similar items in EconPapers)
Pages: 24
Date: 2013
New Economics Papers: this item is included in nep-dev and nep-upt
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Working Paper: Vulnerability and Responses to Risk in Rural India (2012) Downloads
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