In sickness and in health ... risk-sharing within households in rural Ethiopia

To investigate risk-sharing within the household, we model nutritional status as a durable good and we look at the consequences of individual health shocks. For household allocation to be pareto-efficient, households should pool shocks to income. We also investigate whether households can smooth nutritional levels over time. Using data from rural Ethiopia on adult nutritional status, we find that poor households are affected by idiosyncratic agricultural shocks, while richer households are more successful in smoothing nutritional levels. All individuals adjust to predictable changes in earnings and the nutritional status of poor individuals is responsive to seasonal food price fluctuations. Poor southern households are not sharing risk; women in these households bear the brunt of adverse shocks. Finally, we look at the role of inside and outside options in determining the intrahousehold allocation of nutrition of married couples. We find that wives’ relative position improves with a smaller age gap between partners, in younger marriages, as well as by favourable customary laws on settlements upon divorce – but the most important variable affecting allocation is household wealth.