Heterogeneity and risk sharing in village economies
Author(s)
Chiappori, Pierre-Andre; Samphantharak, Krislert; Schulhofer-Wohl, Sam; Townsend, Robert
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We show how to use panel data on household consumption to directly estimate households' risk preferences. Specifically, we measure heterogeneity in risk aversion among households in Thai villages using a full risk-sharing model, which we then test allowing for this heterogeneity. There is substantial, statistically significant heterogeneity in estimated risk preferences. Full insurance cannot be rejected. As the risk-sharing as-if-complete-markets theory might predict, estimated risk preferences are unrelated to wealth or other characteristics. The heterogeneity matters for policy: Although the average household would benefit from eliminating village-level risk, less-risk-averse households that are paid to absorb that risk would be worse off by several percent of household consumption.
Date issued
2014-03Department
Massachusetts Institute of Technology. Department of EconomicsJournal
Quantitative Economics
Publisher
The Econometric Society
Citation
Chiappori, Pierre-André, Krislert Samphantharak, Sam Schulhofer-Wohl, and Robert M. Townsend. “Heterogeneity and Risk Sharing in Village Economies.” Quantitative Economics 5, no. 1 (March 2014): 1–27.
Version: Author's final manuscript
ISSN
17597323
1759-7331