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Risk, shocks, and well-being

Individuals and households in developing countries are vulnerable to considerable risk and shocks. The types of risk and shocks they face range from covariate shocks such as draught, flooding, conflict, political instability and inflation, to idiosyncratic ones, e.g., sickness, loss of job, and death of a family member. 

Most households however don’t have access to formal financial markets to insulate their welfare against these shocks. Instead, households engage in a variety of informal risk mitigation (ex-ante) and shocks coping (ex-post) strategies. Risk management and shocks coping strategies undertaken by households have long-term welfare implications. If a farmer expects poor rainfall, she would not be willing to buy and apply productivity-enhancing modern agricultural inputs, such as fertilizer. Similarly, a farmer who feels insecure about land tenure would not be willing to invest her limited wealth on her land because of fear of confiscation. An urban household that experiences frequent and unexpected power interruption would decide to adopt biomass stoves which contribute to deforestation and forest degradation.    

This research program aims to: i) document the impact of shocks on well-being of households, ii) understand how households respond to uninsured risk and shocks, and iii) create knowledge on the long-term implications of risk management and shocks coping strategies, and iv) investigate the important determinants and dynamics of well-being in developing countries.  

The research program involves researchers from EfD Centers in Ethiopia, Tanzania and Kenya and Sweden. 

Theme leader: Yonas Alem