Conflict and the nature of precautionary wealth

Abstract

Abstract This article examines the accumulation of precautionary wealth in Afghanistan using detailed data from a large household survey. A percent increase in income variance is associated with a 0.22 and 0.84% increase in broad and narrow wealth, respectively. This precautionary response is most pronounced at the extremes of wealth distribution. Wealthy households rely exclusively on livestock, while less affluent use jewelry for self-insurance. Conflict amplifies the precautionary motive, with households in high-conflict provinces reporting higher wealth at the same level of uncertainty. An increase in conflict intensity is also associated with an expansion of livestock weight in the asset portfolio.