Working Paper: NBER ID: w16696
Authors: Pierre-André Chiappori; Krislert Samphantharak; Sam Schulhofer-Wohl; Robert M. Townsend
Abstract: 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.
Keywords: risk aversion; risk sharing; portfolio choice; village economies; Thailand
JEL Codes: D12; D14; D53; D81; D91; G11; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| strong consumption co-movement with aggregate consumption (E20) | relatively less risk averse (D81) |
| individual consumption depends solely on aggregate shocks (E20) | deviations indicate lack of full insurance (G52) |
| full insurance cannot be rejected for households with kin in the village (G52) | consumption allocation akin to complete markets (D10) |
| full insurance is rejected for households without kin (G52) | informal institutions play a critical role in risk-sharing (O17) |
| heterogeneity in risk preferences (D81) | welfare implications of risk-sharing policies must consider diverse impacts (G52) |
| average household would benefit from eliminating village-level risk (R20) | less risk-averse households would experience welfare losses (D11) |
| individual income shocks should not significantly affect consumption under full insurance (G52) | weak relationship between income and consumption (E21) |