Complete Risk-sharing Model Of Experience Test

As known, China is very lack of insurance markets and the existed insurance institutions have not been completed, especially in rural areas. So, the problem of income risk is much greater for farmers. But in reality, rural households often have many informal ways to deal with income shocks, which insure their consumption. This paper focuses on the full risk-sharing model for consumption smoothing.We use the NBS's annual rural survey data from 2000 to 2004, which covers Jiangsu, Henan, Sichuan and Yunnan, and test the full insurance model for 3 kinds of consumption expenditure with different "community" definition. The empirical results indicate that rural households can smooth their total consumption expenditure and food consumption expenditure through risk-sharing within villages when encountering exogenous idiosyncratic shocks, but not for health consumption expenditure. More important, the tests refused the full risk-sharing model within counties and provinces for all the 3 consumption expenditures.According to the results, we conclude: First, it's closer to reality to research rural households' consumption smoothing within villages other than within greater scales of areas; Second, the governments should take measures and make policies to insure farmers' health consumption expenditures.