Skip to main content

Lund University Publications

LUND UNIVERSITY LIBRARIES

Risk-Sharing and Land Misallocation

Pietrobon, Davide LU and Ruggieri, Alessandro (2024) In Working Papers
Abstract
We study the impact of incomplete consumption risk-sharing on land misallocation
in rural economies. We develop a general equilibrium model of land cultivation
choices, where heterogeneous agricultural households face idiosyncratic output
shocks and insure themselves by participating in a risk-sharing arrangement. Incomplete insurance distorts households’ choices, leading them away from maximizing expected incomes and resulting in land misallocation. Using the latest ICRISAT panel data from rural India, we quantify the losses attributable to limited risk-sharing. Completing insurance markets leads to output and welfare gains of 19% and 29%, respectively. Improving the functioning of consumption insurance markets within an... (More)
We study the impact of incomplete consumption risk-sharing on land misallocation
in rural economies. We develop a general equilibrium model of land cultivation
choices, where heterogeneous agricultural households face idiosyncratic output
shocks and insure themselves by participating in a risk-sharing arrangement. Incomplete insurance distorts households’ choices, leading them away from maximizing expected incomes and resulting in land misallocation. Using the latest ICRISAT panel data from rural India, we quantify the losses attributable to limited risk-sharing. Completing insurance markets leads to output and welfare gains of 19% and 29%, respectively. Improving the functioning of consumption insurance markets within an otherwise undistorted economy can yield gains comparable to those achieved by removing distortions in factor markets. (Less)
Please use this url to cite or link to this publication:
author
and
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
Misallocation, risk-sharing, agriculture, productivity, welfare, O11, D61, Q12, D52
in
Working Papers
issue
2024:7
pages
46 pages
language
English
LU publication?
yes
id
be900cb8-ed6a-4524-905d-76c5d20ca424
date added to LUP
2024-09-19 10:16:34
date last changed
2024-09-19 10:16:34
@misc{be900cb8-ed6a-4524-905d-76c5d20ca424,
  abstract     = {{We study the impact of incomplete consumption risk-sharing on land misallocation<br/>in rural economies. We develop a general equilibrium model of land cultivation<br/>choices, where heterogeneous agricultural households face idiosyncratic output<br/>shocks and insure themselves by participating in a risk-sharing arrangement. Incomplete insurance distorts households’ choices, leading them away from maximizing expected incomes and resulting in land misallocation. Using the latest ICRISAT panel data from rural India, we quantify the losses attributable to limited risk-sharing. Completing insurance markets leads to output and welfare gains of 19% and 29%, respectively. Improving the functioning of consumption insurance markets within an otherwise undistorted economy can yield gains comparable to those achieved by removing distortions in factor markets.}},
  author       = {{Pietrobon, Davide and Ruggieri, Alessandro}},
  keywords     = {{Misallocation; risk-sharing; agriculture; productivity; welfare; O11; D61; Q12; D52}},
  language     = {{eng}},
  month        = {{09}},
  note         = {{Working Paper}},
  number       = {{2024:7}},
  series       = {{Working Papers}},
  title        = {{Risk-Sharing and Land Misallocation}},
  url          = {{https://lup.lub.lu.se/search/files/195442851/WP24_7.pdf}},
  year         = {{2024}},
}