Data Management

Household Risk Management

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Executive Summary

Households risk management, that is, households' insurance against adverse shocks to income, assets, and financing needs, is limited and often completely absent, in particular for poor households. The authors explain the limited extent and absence of risk management in an intertemporal model in which households have access to complete markets subject to collateral constraints and in which the financing needs for consumption and durable goods purchases override the risk management concerns. The absence of many markets for claims which allow household risk management is consistent with their model and should not be considered a puzzle. Risk management of the price risk of durable goods moreover depends on the sign of the hedging demand and on whether the household owns or rents the durable goods.

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