Abstract
This paper investigates the extent to which rural households in developing countries are able to smooth consumption, using a theoretical model of full risk sharing, in which participating households have di®erent risk and time preferences. A resulting rule of resource allocation is characterized in an intuitive way, clarifying the e®ects of diverse preferences. Empirical models are applied to a household panel data collected from rural India. Estimation results strongly support the heterogeneity in risk preferences. In contrast, little evidence is found in favor of the intertemporal resource allocation across households according to di®erences in time preferences.
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