Financial constraints and occupational choice in Thai villages
AbstractFinancial constraints and entrepreneurship are key factors affecting economic performance in developing countries. I formulate and solve a model of occupational choice with moral hazard under three alternative financial market environments: savings only, borrowing and lending with default and moral hazard constrained insurance. I use computationally efficient techniques based on mechanism design, genetic algorithms and maximum likelihood to estimate and statistically test these models of financial constraints. Using occupational choice data from Thai villages I find evidence that the saving only regime is rejected in favor of regimes allowing for borrowing and/or insurance, especially in higher-wealth data stratifications. A direct test between the borrowing and insurance regimes reveals that neither can be rejected in favor of the other. Allowing ex-ante lotteries over wealth improves the explanatory power of the model. I also find evidence for differences in the best fitting regimes by region, wealth, and access to formal credit.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 97 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/devec
Occupational choice; Financial constraints; Maximum likelihood;
Find related papers by JEL classification:
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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- Robert M. Townsend & Alexander Karaivanov, 2008. "Enterprise Dynamics and Finance: Distinguishing Mechanism Design from Exogenously Incomplete Markets Models," 2008 Meeting Papers 846, Society for Economic Dynamics.
- Alexander K. Karaivanov & Fernando M. Martin, 2011.
"Dynamic optimal insurance and lack of commitment,"
2011-029, Federal Reserve Bank of St. Louis.
- Alexander K. Karaivanov & Fernando M. Martin, 2007. "Dynamic Optimal Insurance and Lack of Commitment," Discussion Papers dp07-22, Department of Economics, Simon Fraser University.
- Fernando M. Martin & Alexander Karaivanov, 2007. "Dynamic Optimal Insurance and Lack of Commitment," 2007 Meeting Papers 793, Society for Economic Dynamics.
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