Are the poor less well insured? Evidence on vulnerability to income risk in rural China

We test how well consumption is insured against income risk in a panel of sampled households in rural China. The risk insurance models are estimated by Generalized Method of Moments treating income and household size as endogenous. Partial insurance is indicated for all wealth groups, although the hypothesis of perfect insurance is universally rejected, The rejection of full insurance is strongest for the poorest wealth decile, with 40% of an income shock being passed onto current consumption. By contrast, consumption by the richest third of households is protected from almost 90% of an income shock. The extent of insurance in a given wealth stratum varies little between poor and non-poor areas, (C) 1999 Elsevier Science B.V, All rights reserved.