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Decreasing relative risk aversion, risk sharing, and the permanent income hypothesis.


This article make knowns a method for testing the risk-sharing hypothesis (RSH) against various versions of the permanent income hypothesis (PIH) while allowing for heterogeneity in risk predilections across households. Using 1-year and longer differences in household total nondurable consumption data from Indian villages, we find evidence that favors the RSH above the PIH at the village horizontal

KEY WORDS: Consumption smoothing; Generalized manner of moments; Panel data: Permanent income hypothesis; Risk-sharing hypothesis.


1 INTRODUCTION

Many studies, whether based upon household-level or on aggregate-level data, have documented that consumption is les volatile than income the one and the other over time and ...


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