Is consumption smooth at the cost of volatile leisure? An investigation ofrural India

This study examines the institutions in rural India that enable households to insure against unanticipated idiosyncratic shocks to income. Using a dec entralized general equilibrium model it tests for consumption and leisure i nsurance against unanticipated income shacks. It is found that differential access to markets (particularly financial markets) force villagers to diff er in their response to similar shocks. Medium and large farmers have unres tricted access to credit markets and are unaffected by unanticipated change s in household income. The small farmers are excluded from credit markets. However, some of the small fanners are able to insure consumption against u nanticipated income shocks through compensating changes in labour market pa rticipation and reducing own farm work.