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Risk and Return in Village Economies

Listed author(s):
  • Krislert Samphantharak

    (University of California, San Diego)

  • Robert Townsend

    (Massachusetts Institute of Technology)

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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File URL: https://www.pier.or.th/wp-content/uploads/2016/05/pier_dp_027.pdf
File Function: Published version, 2016
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Paper provided by Puey Ungphakorn Institute for Economic Research in its series PIER Discussion Papers with number 27..

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Length: 63 pages
Date of creation: May 2016
Date of revision: May 2016
Publication status: Published in PIER Discussion Paper Series
Handle: RePEc:pui:dpaper:27.
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