Heterogeneity and Risk Sharing in Village Economies

53 Pages Posted: 18 Jan 2011

See all articles by Pierre-Andre Chiappori

Pierre-Andre Chiappori

Columbia University - Graduate School of Arts and Sciences, Department of Economics

Krislert Samphantharak

University of California, San Diego - School of Global Policy and Strategy

Sam Schulhofer-Wohl

Federal Reserve Bank of Chicago

Robert M. Townsend

Massachusetts Institute of Technology (MIT)

Date Written: January 2011

Abstract

We measure heterogeneity in risk aversion among households in Thai villages using a full risk-sharing model and complement the results with a measure based on optimal portfolio choice. Among households with relatives living in the same village, full insurance cannot be rejected, suggesting that relatives provide something close to a complete-markets consumption allocation. There is substantial heterogeneity in risk preferences estimated from the full-insurance model, positively correlated in most villages with portfolio-choice estimates. The heterogeneity matters for policy: Although the average household would benefit from eliminating village-level risk, less-risk-averse households who are paid to absorb that risk would be worse off.

Suggested Citation

Chiappori, Pierre-Andre and Samphantharak, Krislert and Schulhofer-Wohl, Sam and Townsend, Robert M., Heterogeneity and Risk Sharing in Village Economies (January 2011). NBER Working Paper No. w16696. Available at SSRN: https://ssrn.com/abstract=1740321

Pierre-Andre Chiappori (Contact Author)

Columbia University - Graduate School of Arts and Sciences, Department of Economics ( email )

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Krislert Samphantharak

University of California, San Diego - School of Global Policy and Strategy ( email )

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Sam Schulhofer-Wohl

Federal Reserve Bank of Chicago ( email )

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Robert M. Townsend

Massachusetts Institute of Technology (MIT) ( email )

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Cambridge, MA 02139-4307
United States

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