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Heterogeneity and Risk Sharing in Village Economies

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

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16696.

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Date of creation: Jan 2011
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Publication status: published as 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.
Handle: RePEc:nbr:nberwo:16696
Note: AP EFG
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  14. Pierre-Andre Chiappori & Krislert Samphantharak & Sam Schulhofer-Wohl & Robert Townsend, 2013. "Portfolio choices and risk preferences in village economies," Working Papers 706, Federal Reserve Bank of Minneapolis.
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