Risk-sharing networks among households in rural Ethiopia

This paper tests the role of informal risk-sharing networks by setting up a limited commitment model and using panel data on informal credit transactions from Ethiopia.Findings:enforcement problems limit the direct role of credit transactions in risk sharing arrangements between rural households, whether the villages are ethnically homogenous or nothouseholds with more land have better access to the informal credit markets and access is significantly improved through their participation in small group networksinformal credit market and the networks under consideration serve little purpose to the land poor householdsThe paper concludes that full risk-sharing does not appear to materialise at the village level. It recommends that policy action is needed to improve access to credit and insurance options for the poor on the basis of equity and efficiency grounds. Further research is also needed to have a better understanding of rural households in Ethiopia and the role of small networks in consumption smoothing.