Consumption smoothing and the welfare cost of uncertainty

Arbeitspapier

Separating the effects of uncertainty from realised events, and identifying the welfare effects of uncertainty, present a number of empirical challenges. Combining individuallevel panel data from rural Ethiopia with high-resolution meteorological data, we introduce a new proxy for income uncertainty - mean-preserving rainfall variability - and estimate that an increase in income uncertainty is associated with reductions in objective consumption and subjective well-being (SWB). Furthermore, 86% of the effect on SWB is attributed to the direct effects of uncertainty, consistent with a model of optimal expectations (Brunnermeier and Parker, 2005). In addition, we find that farmers in more uncertain environments are more resilient to realised rainfall shocks, consistent with a trade-off between optimism about the future and risk-management investments today. These findings suggest that the gains from further consumption smoothing are likely greater than estimates based solely on realised consumption fluctuations.

Angaben zum Objekt

• ISBN: 978-3-86788-908-7
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Ruhr Economic Papers ; No. 780

Klassifikation und Themen

• Klassifikation: Wirtschaft ; General Welfare; Well-Being ; Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products ; Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets ; Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
• Thema: income uncertainty ; consumption smoothing ; subjective well-being ; rainfall variability

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Alem, Yonas ; Colmer, Jonathan
• Ereignis: Veröffentlichung
• (wer): RWI - Leibniz-Institut für Wirtschaftsforschung
• (wo): Essen
• (wann): 2018

Weitere Informationen

• DOI: doi:10.4419/86788908
• Handle: http://hdl.handle.net/10419/190681
• Letzte Aktualisierung: 10.03.2025, 11:45 MEZ