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

How 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.