Measuring Risk on Investment in Informal (Illegal) Housing: Theory and Evidence from Pune, India
In this paper, we analyze a household's decision to invest in informal (illegal) housing in developing countries. Using a simple model of housing supply, we show that the difference in the rates of return on housing investment in the formal and informal sectors reflects the additional risk associated with the latter. Using household survey data from Pune (a large city in India), we estimate this risk premium in the city to be approximately 22%, or 150 basis points. We use our approach to estimate the informal risk premium for cities in other countries based on results from previous studies.
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| Main Authors: | , |
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| Format: | Journal Article biblioteca |
| Language: | EN |
| Published: |
2008
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| Subjects: | Personal Finance D140, Illegal Behavior and the Enforcement of Law K420, Microeconomic Analyses of Economic Development O120, Formal and Informal Sectors, Shadow Economy, Institutional Arrangements O170, Economic Development: Regional, Urban, and Rural Analyses, Transportation O180, Urban, Rural, and Regional Economics: Housing Demand R210, |
| Online Access: | http://hdl.handle.net/10986/5895 |
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| Summary: | In this paper, we analyze a household's decision to invest in informal (illegal) housing in developing countries. Using a simple model of housing supply, we show that the difference in the rates of return on housing investment in the formal and informal sectors reflects the additional risk associated with the latter. Using household survey data from Pune (a large city in India), we estimate this risk premium in the city to be approximately 22%, or 150 basis points. We use our approach to estimate the informal risk premium for cities in other countries based on results from previous studies. |
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