Microfinance Horizon

Author(s):

Pierre-André Chiappori (Department of Economics, Columbia University),
&
Krislert Samphantharak (UC, San Diego),
&
Sam Schulhofer-Wohl (Research Department, Federal Reserve Bank of Minneapolis),
&
Robert M. Townsend (Department of Economics, MIT)

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.

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