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Risk and Return in Village Economies

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  • Krislert Samphantharak
  • Robert M. Townsend

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.

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  • Krislert Samphantharak & Robert M. Townsend, 2018. "Risk and Return in Village Economies," American Economic Journal: Microeconomics, American Economic Association, vol. 10(1), pages 1-40, February.
  • Handle: RePEc:aea:aejmic:v:10:y:2018:i:1:p:1-40
    Note: DOI: 10.1257/mic.20160125
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    Cited by:

    1. 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, March.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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