The Impacts of Income Volatility and Risk on Economic Outcomes in Ghana
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One often underappreciated feature of the lives of the poor is that their incomes are not only low, but also highly unstable and unpredictable. This is especially true among many of the most populous professions in Africa, small farmers and traders. Despite the ubiquity of income instability and its potential large costs, our empirical understanding of the phenomenon is still limited. This project will study the causal effects of income risk and predictable income volatility on economic outcomes and welfare. To generate exogenous variation in income instability, we will experimentally manipulate the labor demand for casual work in Ghana. Participants will respond to panel surveys on consumption, expenditures, income, savings, assets, loans, debt, and transfers. The design will allow us to study the impact of income instability on consumption levels and smoothing, investigate the strategies used to cope with income instability, and estimate a structural model to simulate policy counterfactuals.