| Abstract: |
We apply the set-up of limited commitment model to empirically test the role
of informal risk-sharing networks using panel data on informal credit
transactions from rural Ethiopia. The empirical estimates provide convincing
evidence for the belief that enforcement problem limits the direct role of
credit transactions in risk-sharing arrangements between rural households,
whether the villages are ethnically homogeneous or not. We also find that
households with more land have better access to the informal credit market and
access is significantly improved through their participation in small group
networks. But the informal credit market and the networks under consideration
serve little purpose to the land poor households. These results, therefore,
imply that full risk-sharing does not appear to materialize at the village
level. |