A general equilibrium analysis of consumption dynamics in rural economies

Working paper

I explore the role of a fixed factor of production in shaping consumption dynamics in a general equilibrium model with uninsurable idiosyncratic income risk. A productive asset in fixed supply, like land, offers a particularly effective form of self-insurance through its effect on the share of safe to risky income in general equilibrium. I apply the model to explain consumption dynamics in land-intensive rural economies in developing countries. The theory rationalizes the puzzlingly low passthrough from income shocks to consumption, low intergenerational mobility, and overall low aggregate savings rates.

Authors: Trouvain, F

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Place of publication: Oxford, UK
• Publication date: 2025-11-02
• Paper number: 1103
• Language: English