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Measuring risk on investment in informal (illegal) housing: Theory and evidence from Pune, India

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  • Kapoor, Mudit
  • le Blanc, David

Abstract

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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  • Kapoor, Mudit & le Blanc, David, 2008. "Measuring risk on investment in informal (illegal) housing: Theory and evidence from Pune, India," Regional Science and Urban Economics, Elsevier, vol. 38(4), pages 311-329, July.
    • Handle: RePEc:eee:regeco:v:38:y:2008:i:4:p:311-329
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    Cited by:

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    10. Brueckner, Jan K. & Lall, Somik V., 2015. "Cities in Developing Countries," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1399-1455, Elsevier.
    11. Indrawan PERMANA & Yuzuru MIYATA, 2012. "An Urban Economic Model Of Ilegal Settlements In Flood Prone Areas In Palangkaraya City, Indonesia -A Partial Equilibrium Analysis-," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(1), pages 29-38, June.
    12. Yuzuru Miyata & Hiroyuki Shibusawa & Indrawan Permana, 2014. "Economic Analysis of Illegal Settlements in Flood Prone Areas in Palangkaraya City in Indonesia - A General Equilibrium Approach -," ERSA conference papers ersa14p527, European Regional Science Association.
    13. Brueckner, Jan K. & Mation, Lucas & Nadalin, Vanessa G., 2019. "Slums in Brazil: Where are they located, who lives in them, and do they ‘squeeze’ the formal housing market?," Journal of Housing Economics, Elsevier, vol. 44(C), pages 48-60.

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