NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Heterogeneity and Risk Sharing in Village Economies

Pierre-André Chiappori, Krislert Samphantharak, Sam Schulhofer-Wohl, Robert M. Townsend

NBER Working Paper No. 16696
Issued in January 2011
NBER Program(s):   AP   EFG

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.

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Document Object Identifier (DOI): 10.3386/w16696

Published: Pierre‐André Chiappori & Krislert Samphantharak & Sam Schulhofer‐Wohl & Robert M. Townsend, 2014. "Heterogeneity and risk sharing in village economies," Quantitative Economics, Econometric Society, vol. 5, pages 1-27, 03. citation courtesy of

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