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Risk and Development: Households and Firms (RDHF)
Start date: Mar 1, 2014, End date: Mar 16, 2019 PROJECT  FINISHED 

Poor households in developing countries face low and volatile incomes, with little access to forma credit and insurance. Households often resort to informal institutions in order to smooth consumption and foster investment. The extended family could be such an institution. We test for the relevance of the extended family as a provider of resources able to smooth consumption fluctuations and promote high return investment in non-collateralizable assets such as education. Climate risk and weather shocks are fundamental source of uncertainty. The possible increase in extreme weather phenomena, as well as the changes in the second (and possibly higher order moments) of the temperature and precipitation distributions, could have dramatic consequences for the poor. Lacking insurance against such shocks, the poor will have to take actions to smooth consumption in the short term to the possible detriment of the future by reducing or channeling investment towards low risk-low return investments and crops. Such weather shocks might also have adverse effects on health through direct and economic channels, and in segmented or imperfect markets similar shocks will impact local prices and therefore welfare of the poor. A proper account of such welfare effects require a well estimated system of demand, in particular when we depart from the unitary model of the household.Often households and firms are inextricably linked in developing countries, where micro-enterprises are prevalent. These firms are often small, informal and unproductive. Do they lack business and managerial capital? Can we bring them out of informality? And does formality cause higher productivity? The recent increase in credit available to the poor raises concerns regarding possible increases in default rates. We test for that using a clean identification strategy and two very rich administrative data sources from Mexico.
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