Blame it on the rain: Rainfall variability, consumption smoothing, and subjective well‐being in rural Ethiopia

AbstractHow does income uncertainty affect individual well‐being? Combining individual‐level panel data from rural Ethiopia with high‐resolution meteorological data, we estimate that mean‐preserving increases in rainfall variability are associated with reductions in objective consumption and subjective well‐being. Mediation analysis suggests that the estimated reduction in consumption does not fully explain the total effect on individual well‐being. Increased rainfall variability also has a large direct effect on individual well‐being. These findings suggest that the gains from further consumption smoothing are likely greater than estimates based solely on observed consumption fluctuations.