Household Risk Management

Household Risk Management

Households’ insurance against shocks to income and asset values (that is, household risk management) is limited, especially for poor households. We argue that a trade-off between intertemporal financing needs and insurance across states explains this basic insurance pattern. In a model with limited enforcement, we show that household risk management is increasing in household net worth and inco...

Household Risk Management and Optimal Mortgage Choice

A typical household has a home mortgage as its most significant financial contract. The form of this contract is correspondingly important. This paper studies the choice between a fixed-rate (FRM) and an adjustable-rate (ARM) mortgage. In an environment with uncertain inflation, a nominal FRM has risky real capital value whereas an ARM has a stable real capital value. However an ARM can increas...

Barriers to Household Risk Management: Evidence from India.

Why do many households remain exposed to large exogenous sources of non-systematic income risk? We use a series of randomized field experiments in rural India to test the importance of price and non-price factors in the adoption of an innovative rainfall insurance product. Demand is significantly price sensitive, but widespread take-up would not be achieved even if the product offered a payout ...

Risk and Household Grain Management in Developing Countries

A dynamic model is presented of a household’s joint production, storage, and trade decisions under price risk, region-wide and idiosyncratic yield risk, and explicit transaction costs. Balancing the goals of profit maximization and hedging against consumption price risk, grain management decisions are nonlinear, interdependent functions of the market price and household grain availability and f...

Risk, Risk Management and Vulnerability to Poverty at Household Level in Malawi