Income risk is particularly large and a particular concern in developing countries characterised by credit constraints and lacking in the comprehensive social insurance found in more advanced economies. A growing body of research has shown that high levels of income risk are associated with negative outcomes, and in particular, that the presence of high risk prevents poor households from undertaking profitable, if somewhat uncertain, investment activities.

Much of the literature focuses upon documenting the ex-post impact of an income shock and efforts to use historical risk are made difficult by the need to identify valid instrumental variables to account for endogeneity. This project uses a more "direct" approach by asking household heads to assign probabilities to different incomes. Whilst these types of questions can be difficult to implement amongst a population with low levels of literacy and numeracy, careful design and explanations can enable this. This project analyses the plausibility of estimates of expected income and income risk obtained from this method using questions contained in the first and second follow up surveys of the Familias en Accièn survey. It will also look at ways of improving the method for future surveys of a similar nature.