Two decades after its original publication, The Analysis of Household Surveys is reissued with a new preface by its author, Sir Angus Deaton, recipient of the 2015 Nobel Prize in Economic Sciences. This classic work remains relevant to anyone with a serious interest in using household survey data to shed light on policy issues. This book reviews the analysis of household survey data, including the construction of household surveys, the econometric tools useful for such analysis, and a range of problems in development policy for which this survey analysis can be applied. The author's approach remains close to the data, using transparent econometric and graphical techniques to present data in a way that can clearly inform policy and academic debates. Chapter 1 describes the features of survey design that need to be understood in order to undertake appropriate analysis. Chapter 2 discusses the general econometric and statistical issues that arise when using survey data for estimation and inference. Chapter 3 covers the use of survey data to measure welfare, poverty, and distribution. Chapter 4 focuses on the use of household budget data to explore patterns of household demand. Chapter 5 discusses price reform, its effects on equity and efficiency, and how to measure them. Chapter 6 addresses the role of household consumption and saving in economic development. The book includes an appendix providing code and programs using STATA, which can serve as a template for the users' own analysis.

The analysis of household surveys

Income risk is a central feature of rural areas of developing countries. A major topic in development economics is how well households are able to mitigate the adverse effects of income risk. There are several sensible reasons why households will not be able to fully insure consumption against income fluctuations. The well-known problems of moral hazard, information asymmetries, and deficiencies in the ability to enforce contracts may result in incomplete or absent insurance markets. The dearth of formal insurance markets in developing countries is evidence that these problems are considerable. However, a large body of literature indicates that households in developing countries make use of a wide variety of mechanisms, often informal, to at least partially limit consumption risk. A key piece of information required to guide policy design is how, and how well, different households mitigate risk. This paper reviews various strategies for insuring consumption against income fluctuations, and examines evidence on how effectively these strategies work.

Do the poor insure? A synthesis of the literature on risk and consumption in developing countries

In the literature on economic development, much of the interest in saving has been focused on the relation between saving and growth. But saving is not only about accumulation. It is about smoothing consumption in the face of volatile and unpredictable income, and helping to ensure the living standards of poor people whose lives are difficult and uncertain. This paper develops a model of households which cannot borrow but which accumulate assets as a buffer stock to protect consumption when incomes are low. Such households dissave as often as they save, do not accumulate assets over the long term, and have on average very small asset holdings. But their consumption is markedly smoother than their income. Much of the evidence is as consistent with this view of saving as it is incosistent with standard views of smoothing over the life-cycle, and with explanations of the link between saving and growth in terms of life-cycle saving behavior. Consumption smoothing is also a useful way of thinking about government policy, where volatility in the world prices of taxed commodities can generate sharp fluctuations in government revenues as well as reallocations of revenue between the private and public sectors. Many important policy issues in developing countries hinge on issues of consumption and smoothing, and research on these issues is currently likely to be more productive than work on the relation between saving and growth.

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Saving in Developing Countries: Theory and Review

This brief summarizes the investing cash transfers to raise long term living standards in Mexico The study measures 18 months of exposure to the program Households receive benefits for a three year period Cash benefits are received monthly Using data from a randomized experiment, the author find that poor rural Mexican households invested part of their cash transfers from the oportunidades program in productive assets, increasing agricultural income by almost 10 percent after 18 months of benefits The author estimates that for each peso transferred, households consume 74 cents and invest the rest, permanently increasing long-term consumption by about 16 cents Results suggest that cash transfers can achieve long-term increases in consumption through investment in productive activities, thereby permitting beneficiary households to attain higher living standards that are sustained even after transitioning off the program

Mexico - Investing cash transfers to raise long term living standards

Many households in developing countries rely on seasonal agriculture for their incomes. This paper investigates whether household consumption expenditure tracks income across seasons. Using data from Thailand, I contrast the seasonal consumption patterns of households with different seasonal income patterns and estimate the responsiveness of seasonal consumption to seasonal income. I find little evidence that consumption tracks income over the course of the year. The findings suggest that observed seasonal consumption patterns are the result of seasonal variations in preferences or prices, common to all households, rather than an inability of households to use savings behavior to smooth consumption.

Consumption and Income Seasonality in Thailand

An extension of Friedman's permanent income model by explicitly allowing for the distinction between pure measurement errors and transitory terms in the observed variables allows implementation of valid and direct tests of the permanent income hypothesis (PIH). These tests do not need the measurement error associated with each individual's income per se; rather, only the variance of these errors is necessary. The extended model also makes possible a correct comparison between the traditional and permanent income theory of consumer behavior. Neither hypothesis is supported in full. The contention of the PIH that measured consumption elasticities are downwardly biased estimates of the true permanent elasticities is supported by the data. The importance of the bias caused by measurement errors is revealed at all stages of the analysis. The large magnitude of error variances suggests that researchers should be more cautious than usual with one-shot survey data. Discussions of data and definitions used and the derivation of measurement error variances are appended. 14 references.

Surjit S. Bhalla

Papers

Measurement errors and the permanent income hypothesis: Evidence from rural India