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Bulletin of Indonesian Economic Studies
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Credit Constraints, Risk Sharing, and Household
Welfare: The Case of Indonesia
Sigit Sulistiyo Wibowo
To cite this article: Sigit Sulistiyo Wibowo (2015) Credit Constraints, Risk Sharing, and Household Welfare: The Case of Indonesia, Bulletin of Indonesian Economic Studies, 51:2, 307-308, DOI: 10.1080/00074918.2015.1061918
To link to this article: http://dx.doi.org/10.1080/00074918.2015.1061918
Published online: 24 Aug 2015.
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Bulletin of Indonesian Economic Studies, Vol. 51, No. 2, 2015: 307–8
ISSN 0007-4918 print/ISSN 1472-7234 online/15/000307-2
ABSTRACTS OF DOCTORAL THESES
ON THE INDONESIAN ECONOMY
Credit Constraints, Risk Sharing, and Household Welfare: The Case of Indonesia
Sigit Sulistiyo Wibowo ([email protected]) Accepted 2015, Durham University
This thesis studies household welfare and inancial markets. In particular, it empirically examines inancial access, human-capital investment, saving, and risk-sharing group formation, using Indonesian households as a case study. Ineficient inancial markets in developing countries lead to ineficient resource allocation, economic inequality, and high transaction costs. Households that are marginalised from inancial systems ind themselves unable to access inancial services and therefore cannot smooth their consumption.
In the irst of three empirical studies, I consider how credit constraints come to exist and how to identify them. Credit constraints may arise from market mecha-nisms: the demand for loans and the supply of loans. In order to assess credit constraints, I use direct elicitation methodology and then examine the gathered information and other household characteristics by applying a multinomial logit model. Using an access-to-inance survey conducted by the World Bank, I ind that Indonesian households are likely to experience supply-side constraints rather than demand-side constraints. I also ind that inancial literacy plays a vital role in accessing services from formal inancial institutions. I estimate welfare loss by elaborating several types of constraints: households constrained because of risk-related reasons experience a loss in annual income of between Rp 16 million and Rp 19 million.
In the second study, I investigate the impacts of earnings risk on schooling and saving. I borrow Basu and Ghosh’s (2001) model to develop a theoretical frame-work of a two-period model, which depicts the relation between earnings risk, schooling, and saving. Using the Indonesia Family Life Survey (IFLS) dataset, I conirm that the decision to enter schooling is motivated by earnings risk. The earnings risk is measured by occupational earnings risk and by earnings range, or the variability between the maximum and minimum level of earnings across the IFLS wave. This study inds that education decreases the variability of future income. Given that the pure risk effect is more dominant than the utility smooth-ing effect, it can be said that savsmooth-ing is to some extent inadequate for anticipatsmooth-ing a decline in household income, owing to earnings risk. The results also show that the earnings range is close to Basu and Ghosh’s predictions.
308 Abstracts of Doctoral Theses on the Indonesian Economy
Another issue related to inancial markets is the barrier to insurance for house-holds, which also limits their capability to manage life risk. As a result, alternative risk-coping mechanisms emerge that provide these households with other ways of securing informal insurance arrangements, such as forming risk-sharing groups. In this third study, I investigate the formation of risk-sharing groups in circum-stances where the group faces barriers to insurance. I use several tests to examine a full risk-sharing hypothesis and Deaton’s (1991) borrowing-saving hypothesis, as well as considering limited commitment, moral hazard, and hidden income. Using the IFLS dataset, this study provides evidence that the full risk-sharing hypothesis fails, largely owing to problems of limited commitment and moral hazard. Furthermore, I show that endogenous group formation emerges within IFLS households.
© 2015 Sigit Sulistiyo Wibowo
http://dx.doi.org/10.1080/00074918.2015.1061918
