Financial constraints and occupational choice in Thai villages |
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Authors: | Alexander Karaivanov |
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Institution: | Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, B.C., Canada V5A 1S6 |
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Abstract: | Financial constraints and entrepreneurship are key factors affecting economic performance in developing countries. I formulate and solve a model of occupational choice with moral hazard under three alternative financial market environments: savings only, borrowing and lending with default and moral hazard constrained insurance. I use computationally efficient techniques based on mechanism design, genetic algorithms and maximum likelihood to estimate and statistically test these models of financial constraints. Using occupational choice data from Thai villages I find evidence that the saving only regime is rejected in favor of regimes allowing for borrowing and/or insurance, especially in higher-wealth data stratifications. A direct test between the borrowing and insurance regimes reveals that neither can be rejected in favor of the other. Allowing ex-ante lotteries over wealth improves the explanatory power of the model. I also find evidence for differences in the best fitting regimes by region, wealth, and access to formal credit. |
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Keywords: | O12 C52 D82 |
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