In Sickness and in Health: Risk Sharing within Households in Rural Ethiopia

TLDR

Much of the literature on consumption smoothing has focused on households as units, but little is known about how individual members maintain consumption stability over time or relative to one another. The study uses adult nutrition data from Ethiopia to investigate whether individuals can smooth their consumption over time and within the household. The authors estimate relative Pareto weights in household allocation using this nutrition data. They find that poorer households, especially in southern Ethiopia, cannot smooth consumption, lack complete risk sharing, and that women bear the brunt of shocks, with lower Pareto weights unless favorable customary laws or wealth mitigate this.

Abstract

Much of the literature on consumption smoothing and on risk sharing has focused on the ability of the household as a unit to protect its consumption. Little is known about the ability of individual members of the household to keep consumption smooth over time or relative to other members of the household. We use data on adult nutrition in Ethiopia to investigate whether individuals are able to smooth their consumption over time and within the household. We find that poorer households are not able to do so. Furthermore, poor southern households do not engage in complete risk sharing; women in these households bear the brunt of adverse shocks. This result implies that the collective model of household organization, which imposes Pareto efficiency on allocations, is rejected for these households. Finally, we obtain estimates of the relative Pareto weights in household allocation. We find that a wife’s relative position is better if customary laws on settlements at divorce are favorable or if she comes from a relatively wealthy background and that poor southern women have lower Pareto weights in allocation.