Monday, 16 April 2007

Research Paper: Health Shocks, Village Elections, and Long-Term Income: Evidence from Rural China

This paper is interesting as it highlights a potentially rich data source. Being an NBER working paper a certain quality level is assured.

"Health Shocks, Village Elections, and Long-Term Income: Evidence from Rural China"
NBER Working Paper No. W12686

Contact: LI GAN
Texas A&M University - Department of Economics,
National Bureau of Economic Research (NBER)

World Bank - Development Research Group (DECRG),
Peking University - Guang Hua School of Management

Co-Author: YANG YAO
Beijing University - China Center for Economic

Full Text:
ABSTRACT: Using a sample of households in 48 Chinese villages for the period 1986-2002, this paper studies the dynamic effects of major health shocks on household income and the role played by village elections in mitigating these effects. Our results show that in the first 15 years after a shock, a shock-hit household on average falls short of its normal income trajectory by 11.8% and its recovery would take 19 years. Based on the premise that shock-hit families impose negative externalities on richer families by borrowing from them, our political economy model predicts that the outcome of village elections would differ from that of a standard median voter model in that the elected village leaders tend to adopt pro-poor policies. Our empirical study finds that villages are more likely to establish a healthcare plan after the election is introduced. In addition, village elections reduce the probability of a household to borrow by 16.7% when one of its working adults is seriously sick. As a result, they reduce more than half of the negative effect of a health shock on household income.

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