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Risk taking and the quality of informal insurance: gambling and remittances in Thailand

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Douglas L. Miller
Anna Paulson

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Abstract

More than 35% of Thai households either give or receive remittances, and remittances account for about one-third of the income of the receiving households. Remittance relationships may be an important source of protection against adverse events for the individuals involved. This paper provides evidence that remittances behave in a way that is consistent with insurance: they are sensitive to shocks to regional rainfall and they respond to household level events. The paper goes on to consider how the quality of insurance that is offered through remittances affects household risk taking behavior. Specifically, we show that the likelihood and the amount of gambling increase with the quality of informal insurance. The findings suggest that households who are more insured shift their portfolios toward riskier investments.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-07-01.

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Date of creation: 2007
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Handle: RePEc:fip:fedhwp:wp-07-01

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Keywords: Gambling industry Payment systems Insurance

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