This paper examines how variations in labor supply can be used to self-insure against wage uncertainty, and the impact of such self-insurance on precautionary saving. The analytical framework is a two-period model with saving and labor-supply decisions where preferences are consistent with...

Using detailed micro-data, this paper documents that households with lower income risk (and higher income levels) exhibit a higher Marginal Propensity to Consume (MPC) in response to transitory income shocks, all else being equal. This finding is particularly significant among unconstrained...

This paper examines the effects of income shock on savings decision of a household. In particular, it analyzes how an idiosyncratic income shock affects the asset portfolio held by a household. It shows that income volatility contributes to poverty of rural households by leading them to reduce...