title: Heterogeneity and Risk Sharing in Village Economies.
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 who are paid to absorb that risk would be worse off by several percent of household consumption.
authors.affiliation: Columbia University.
authors.forename: Pierre-André
authors.initials: PA
authors.lastname: Chiappori
authors.affiliation: University of California, San Diego.
authors.forename: Krislert
authors.initials: K
authors.lastname: Samphantharak
authors.affiliation: Federal Reserve Bank of Minneapolis.
authors.forename: Sam
authors.initials: S
authors.lastname: Schulhofer-Wohl
authors.affiliation: Massachusetts Institute of Technology.
authors.forename: Robert M
authors.initials: RM
authors.lastname: Townsend
keywords: Complete markets; Heterogeneity; Insurance; Risk preferences