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An empirical investigation of risk sharing among Indonesian households.

Basu, P. and Wibowo, S.S. (2017) 'An empirical investigation of risk sharing among Indonesian households.', Working Paper. Durham University Business School .

Abstract

This study investigates the barriers to risk-sharing among Indonesian house holds. We test alternative risk sharing models, namely full risk sharing, borrowing-saving, saving only, hidden income, moral hazard and limited com mitment among households. Based on three waves of the Indonesia Family Life Survey (IFLS) dataset, we find that the full risk-sharing hypothesis fails. A nested regression framework suggested by Kinnan (2014) provides evidence in fa vor of the hidden income hypothesis. However, such a nested framework is unable to discriminate between moral hazard and limited commitment. This motivates us to resort to a non-nested framework. Within this non-nested framework, we test two risk sharing models: (i) the Kocherlakota-Pistaferri (2010) moral haz ard model with full commitment and (ii) the Ligon et al. (2002) dynamic limited commitment model. IFLS data reject (i) but there is weak evidence of (ii). Based on this, we conclude that there are two hidden barriers to risk sharing among the IFLS households, namely hidden income and limited commitment.

Item Type:Monograph (Working Paper)
Full text:(VoR) Version of Record
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Status:Peer-reviewed
Publisher Web site:UNSPECIFIED
Date accepted:No date available
Date deposited:04 June 2019
Date of first online publication:2017
Date first made open access:No date available

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