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.
"Risk and Return in Village Economies."
American Economic Journal: Microeconomics,
Consumer Economics: Empirical Analysis
Firm Behavior: Empirical Analysis
Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
Criteria for Decision-Making under Risk and Uncertainty
Microeconomic Analyses of Economic Development
Industrialization; Manufacturing and Service Industries; Choice of Technology
Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure