This article develops a method for testing the risk-sharing hypothesis (RSH) against various versions of the permanent income hypothesis (PIH) while allowing for heterogeneity in risk preferences across households. Using 1-year and longer differences in household total nondurable consumption data from Indian villages, we find evidence that favors the RSH over the PIH at the village level.
ASJC Scopus subject areas
- Statistics and Probability
- Social Sciences (miscellaneous)
- Economics and Econometrics
- Statistics, Probability and Uncertainty