.ISSN (e) 1759-7331
(print) 1759-7323
Quantitative Economics
An open-access journal in quantitative economics
Journal of the
Econometric Society
Font Size:  Small  Medium  Large

Quantitative Economics, Volume 5, Issue 1 (March 2014)

Heterogeneity and risk sharing in village economies

Pierre-André Chiappori, Krislert Samphantharak, Sam Schulhofer-Wohl, Robert M. Townsend

Abstract


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. Keywords. Risk preferences, heterogeneity, complete markets, insurance. JEL classification. D12, D14, D53, D81, D91, G11, O16.

Full Text: Print View PDF (Print)