Matthieu Delpierre

Do the Poor Benefit Less from Informal Risk-Sharing? Risk Externalities and Moral Hazard in Decentralized Insurance Arrangements

Empirical evidence on developing countries highlights that poor farm-households are less keen to adopt high risk / high return technologies than rich households. Yet, they tend to be more vulnerable to income shocks than the rich. This paper develops a model of informal risk-sharing with endogenous risk-taking which provides a rationale for these observations. In our framework, informal risk-sharing is incomplete due to risk externalities, which leads to moral hazard. We compare the .rst best and second best to a decentralized bargaining process, where the lack of coordination ampli.es moral hazard. The analysis of group composition yields counterintuitive results. First, if groups are homogeneous, poor groups share less risks than rich groups even though the rich take more risks. Second, the insurance level of rich households decreases in the presence of poor households, potentially making them reluctant to share risk with poorer households.

Risk as impediment to privatization?: The role of collective fields in extended agricultural households

As in the case of cooperatives, collective fields in extended agricultural households act as an insurance device but entail inefficiencies arising from the incentives to free ride on coworkers’ efforts. Privatization provides good incentives but decreases the level of risk sharing. The classical analysis of this trade-off rules out another major risk-sharing mechanism, namely income transfers. This paper is a first attempt to merge the two insurance mechanisms: collective production, which is plagued by free riding, and income transfers, which are hampered by limited commitment. Privatization of land is shown to interact with incentives to abide by the insurance agreement, so that the trade-off between risk sharing and production may or may not be maintained with income transfers. We show that an increase in the value of the household members’ exit option or a decrease in patience decreases the optimal rate of privatization, while larger households are more likely to privatize land.