Risk and Return in Village Economies
Author(s)
Samphantharak, Krislert; Townsend, Robert
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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. (JEL D12, D22, D24, D81, O12, O14, O18)
Date issued
2018-02Department
Massachusetts Institute of Technology. Department of EconomicsJournal
American Economic Journal: Microeconomics
Publisher
American Economic Association
Citation
Samphantharak, Krislert, and Robert M. Townsend. “Risk and Return in Village Economies.” American Economic Journal: Microeconomics 10, no. 1 (February 2018): 1–40. © 2018 American Economic Association
Version: Final published version
ISSN
1945-7669
1945-7685