Risk and Return in Village Economies

Krislert Samphantharak and Robert M. Townsend

American Economic Journal: Microeconomics, 2018, vol. 10, issue 1, 1-40

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 D22 D24 D81 O12 O14 O18 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/mic.20160125
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Citations: View citations in EconPapers (13)

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Working Paper: Risk and Return in Village Economies (2013)
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