Risk and Return in Village Economies

Krislert Samphantharak and Robert Townsend

No 19738, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper provides a theory-based empirical framework for understanding the risk and return on productive capital assets and their allocation across activities in an economy characterized by idiosyncratic and aggregate risk and thin formal markets for real and financial assets. We apply our framework to households running business enterprises in Thai villages with extensive networks, taking advantage of panel data: income, assets, consumption, gifts, and loans. We decompose risk and estimate the risk premia faced by households, distinguishing aggregate risk from idiosyncratic, potentially diversifiable risk. This distinction matters for estimating measures of underlying productivity and has important policy implications.

JEL-codes: D12 D13 G11 L23 L26 O12 O16 O17 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-fmk, nep-mfd and nep-sea
Note: AP DEV PR
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Published as Krislert Samphantharak & Robert M. Townsend, 2018. "Risk and Return in Village Economies," American Economic Journal: Microeconomics, vol 10(1), pages 1-40.

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