Abstract
Rural households in developing countries are often faced with unpredictable shocks to their economy which maketheir flow of income unstable. A number of studies in recent literature investigate the consumption smoothing mechanisms through “social network”. However, these studies have focused on the “social network” formed through reciprocal bilateral relationships although in reality,the gifts and loans through other types of relationships including remittance from migrants and donations from the village community also contribute to risk-pooling of rural households. This paper investigates how rural households deal with such shocks, using data collected from Cambodia. We show that gifts and zero interest loans can mitigate the negative impact of shocks such as illness, injury, and death of family member on household economy not only through reciprocal bilateral relations but through other types of relationships. We also show that rural households are more likely to sell their assets when they are faced with these shocks. These findings differ from those of the existing literature.
