Risk and Return in Village Economies
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 framewo...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
American Economic Association,
2018-03-15T17:42:05Z.
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| Subjects: | |
| Online Access: | Get fulltext |
| Summary: | 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) Eunice Kennedy Shriver National Institute of Child Health and Human Development (U.S.) (grant number R01 HD027638) Templeton Foundation (grant number 12470) Private Enterprise Development in Low-Income Countries (Centre for Economic Policy Research (CEPR) and the Department for International Development (DFID) (contract reference MRG002_1255)) University of Chicago. Consortium on Financial Systems and Poverty (Bill & Melinda Gates Foundation (grant number 51935)) Thailand Research Fund Bank of Thailand |
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