The Rich Complexity of Village Life
This paper measures the extent of risk sharing and differences in risk aversion amongst households in 16 Thai villages. It also attempts to determine the effectiveness of policy measures to even out risks because of economic fluctuations.
The study used risk sharing and portfolio choice techniques to understand how villagers feel about the risk implied by economic volatility and how they cope with it. Key findings of this study are:
- Villagers do share risks and in the case of households with relatives living in the village, there is complete risk sharing;
- Attitudes toward risk differ among households. At the individual village level, there is strong evidence of diversity in risk tolerance;
- Neither measure of risk tolerance is correlated with household demographics or wealth;
- Households with lower risk tolerance are willing to pay more to eliminate risk, while those with high risk tolerance actually gain from village wide risk.
This paper concludes that policies to smooth aggregate risk are not clearly beneficial. It demonstrates that village life is complex and research tools used to analyze risk on Wall Street’s complex financial markets are equally necessary for understanding the intricate economics of rural Thailand.