Heterogeneity and risk sharing in village economies

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

doi:10.3982/qe131

Cited by 50 publications

(21 citation statements)

References 30 publications

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“…We echo previous work which finds that full risk sharing is rejected, but not by much, and indeed find that the moral hazard regime is not inconsistent with the rural income and consumption data, where limited commitment also does well, and with the joint business and consumption data in our urban sample. We also recover more sophisticated contract theoretic regimes (moral hazard constrained credit, tied with full information) if we restrict attention to family or gift/loan networks data, confirming related work byChiappori et al (2013) and Kinnan and Townsend (2012).…”

Section: Discussionsupporting

confidence: 66%

“…Compared to the whole sample results and likelihoods in Table 5, with consumption and income cross-sectional data alone, this networked sub-sample allows us to narrow down the best fitting regime as moral hazard (tied with FI). Evidently, family networks help in consumption smoothing as inChiappori et al (2013). LC is, however, the best-fitting regime in the (c,q) sub-sample of unrelated households (tied with MH, but note the small number of observations).…”

Section: Application To Thai Datamentioning

confidence: 99%

“…The σ values are taken from the actual range of risk aversion values estimated inChiappori et al (2013). Similarly to the robustness run with productivity differences above, a mixed sample of size n = 1000 is generated from the simulations.…”

Section: Robustnessmentioning

confidence: 99%

“…Second, we also learn about potential next steps in modeling financial regimes. We know in particular, from other work with these data, that consumption smoothing is quite good, that is, it is sometimes difficult to reject full insurance, in the sense that the coefficient on idiosyncratic income, if significant, is small (Chiappori et al, 2013). We also know that investment is sensitive to income, especially for the poor but, on the other hand, this is to some extent overcome by family networks (Samphantharak and Townsend, 2010).…”

Section: Introductionmentioning

confidence: 99%

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Dynamic Financial Constraints: Distinguishing Mechanism Design From Exogenously Incomplete Regimes

2014

Econometrica

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We formulate and solve a range of dynamic models of constrained credit/insurance that allow for moral hazard and limited commitment. We compare them to full insurance and exogenously incomplete financial regimes (autarky, saving only, borrowing and lending in a single asset). We develop computational methods based on mechanism design, linear programming, and maximum likelihood to estimate, compare, and statistically test these alternative dynamic models with financial/information constraints. Our methods can use both cross-sectional and panel data and allow for measurement error and unobserved heterogeneity. We estimate the models using data on Thai households running small businesses from two separate samples. We find that in the rural sample, the exogenously incomplete saving only and borrowing regimes provide the best fit using data on consumption, business assets, investment, and income. Family and other networks help consumption smoothing there, as in a moral hazard constrained regime. In contrast, in urban areas, we find mechanism design financial/information regimes that are decidedly less constrained, with the moral hazard model fitting best combined business and consumption data. We perform numerous robustness checks in both the Thai data and in Monte Carlo simulations and compare our maximum likelihood criterion with results from other metrics and data not used in the estimation. A prototypical counterfactual policy evaluation exercise using the estimation results is also featured.

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Section: Discussionsupporting

confidence: 66%

Section: Application To Thai Datamentioning

confidence: 99%

Section: Robustnessmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Dynamic Financial Constraints: Distinguishing Mechanism Design From Exogenously Incomplete Regimes

2014

Econometrica

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“…Using the monthly panel data from the Townsend Thai project, Chiappori et al (2014) seek to test this benchmark allocation of efficiency, taking advantage of the unusual length of the panel. Again, theory suggests that household consumption should depend on time fixed effects that capture village aggregate risk/consumption.…”

Section: Risk Sharingmentioning

confidence: 99%

Village and Larger Economies: The Theory and Measurement of the Townsend Thai Project

Townsend

2016

Journal of Economic Perspectives

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I have spent close to 20 years cataloging transactions between households in Thai villages, along with a research team. Just this past summer, we documented a number of ways in which even relatively poor villages have money markets not dissimilar in some ways from New York financial markets, with borrowing and repayment passing along links in credit chains. In another project, we have been looking at month-by-month school attendance, grade level completion, and graduation for children in these villages, following them from birth to graduation. The Townsend Thai project is a theory-based data collection endeavor, measuring and mapping village and larger economies into general equilibrium frameworks. This paper reviews a number of findings, implications, applications, and lessons learned, and considers next steps.

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Smoothing consumption in times of illness: Household recourse mechanisms

Dureja,

Negi

2024

Health Economics

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We study the welfare impacts of illness shocks on rural agricultural households in the semi‐arid tropical and humid eastern regions of India. These regions are characterized by rainfed agriculture, missing markets for credit and insurance, and limited access to publicly funded healthcare infrastructure. We find that illness shocks increase households' medical expenditures and reduce wage income. However, aggregate non‐medical, food, and non‐food consumption expenditures are insensitive to illness shocks. Disaggregating illness by the age and the gender of the household members, we observe that illness in male children leads to the largest increase in medical expenditure, and illness in prime‐aged adults leads to the largest decline in per‐capita wage earnings. We also find illness shocks leading to changes in household dietary diversity, higher travel expenditures, and a compensating reduction in spending on education and entertainment. Analysis of risk‐coping strategies reveals that households rely on transfers from kinship networks and loans from informal sources like local moneylenders to smooth consumption. While large landowners rely on gifts from kinship networks, landless and smallholders increase borrowings from informal sources.

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Heterogeneity and risk sharing in village economies

Cited by 50 publications

References 30 publications

Dynamic Financial Constraints: Distinguishing Mechanism Design From Exogenously Incomplete Regimes

Dynamic Financial Constraints: Distinguishing Mechanism Design From Exogenously Incomplete Regimes

Village and Larger Economies: The Theory and Measurement of the Townsend Thai Project

Smoothing consumption in times of illness: Household recourse mechanisms

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