Poor rural and urban households in developing countries face substantial risks, which they handle with risk-management and risk-coping strategies, including self-insurance through savings and informal insurance mechanisms. Despite these mechanisms, however, vulnerability to poverty linked to risk remains high. Stefan Dercon has continued his work on risk and poverty of which one part has focused on understanding the strategies households use to cope with risk.

A paper, with Joachim De Weerdt, has focused on whether networks are relevant for risk-coping in a village in Tanzania, using detailed panel data. The implications of having overlapping networks for standard risk-sharing tests were examined, and the impact of health shocks on consumption across households was tested.

Another paper by Stefan Dercon, reviewing the evidence on risk-management and risk-coping strategies, prepared as a background paper for the World Development Report 2000/01, has now appeared in World Bank Research Observer. 

It was found that health shocks have substantial effects on consumption but also that networks were contributing to risk-sharing. Given that there is substantial exclusion from networks, and inequality in terms of the wealth of networks, the village is clearly not the appropriate unit to study risk-sharing, even in this setting, with relatively poor households with relatively limited market interaction.

Risk and lumpiness limit the opportunities to use assets as insurance, entry constraints limit the usefulness of income diversification, annformal risk-sharing provides only limited protection, leaving some of the poor exposed to very severe negative shocks. Public safety nets are likely to be beneficial, but their impact is sometimes limited, and they may have negative externalities on households that are not covered. Collecting more information on households' vulnerability to poverty - through both quantitative and qualitative methods - could help inform policy.