estimate of lack financial access, as assumed in the LEB model.<sup>However,theSESdoesnotrecord</sup> directly measures of wealth. From the ownership of various household<sup>assets, the value of the houseand</sup> other rental assets, Jeong (1999) estimates a measure of wealth<sup>based on Principal ComponentsAnalysis</sup> which essentially estimates a latent variable that can best explain the<sup>overallvariationin the ownership</sup> of the house and other household assets<sup>18</sup> .

We use the observations for the first available years, 1976 and<sup>1981,toobtainfullidentificationas</sup> the wage varied over these two periods. The sample consists<sup>of</sup> a total<sup>of 24,433 observationswith9,028</sup> observations from 1976 and 15,405 from 1981.

The second dataset is a specialized but substantial cross sectional<sup>surveyconductedinThailandin</sup> May 1997 of 2880 households<sup>19</sup> The sample is special in that it was restricted to two provinces<sup>in</sup> the relatively poor semi arid Northeast and two provinces in the<sup>more</sup> industrialized<sup>centralcorridoraround</sup> Bangkok. Within each province, 48 villages were selected in a stratified<sup>clusteredrandomsample.Thus</sup> the sample excludes urban households. Within each village 15 households<sup>wereselectedat random.The</sup> advantage of this survey is that the household questionnaire<sup>elicitsan enumerationof all potentialassets</sup> (household, agricultural and business), finds out what is currently owned, and<sup>if so whenit was acquired.</sup> In this way, as in Paulson and Townsend (2001), we create an estimate<sup>of pastwealth, specificallywealth</sup> of the household 6 years prior to the 1997 interview, 1991. The survey<sup>alsoasksaboutcurrentand</sup> previous occupations of the head, and in this way it creates estimates of<sup>occupationtransitions,thatis</sup> which of the households were not operating their own business<sup>before1992,fiveyears priorto the1997</sup> interview, and started a business in the following five years. Approximately<sup>21percentof the households</sup> made this transition in the last five years and 7 percent between<sup>fiveandtenyearsago.Abusiness</sup> owner in the Townsend-Thai data is a store owner, shrimp farmer, trader<sup>ormechanic2 0.Amongother</sup> variables, the survey also records the current education level of household<sup>members;thehistoryofuse</sup> of the various possible financial institutions: formal (commercial banks,<sup>BAACandvillagefunds)and</sup> informal (friends and relatives, landowners, shopkeepers and moneylenders);<sup>and whetherhouseholds</sup> claimed to be currently constrained in the operation of their business.<sup>21</sup> '<sup>22</sup> Since the LEB model is designed to explain the behavior of those<sup>agentswithoutaccesstocredit,</sup> we restrict our sample to those households that reported having<sup>norelationshipwithanyformalor</sup> informal credit institution, another strength of the survey<sup>2 3</sup> .<sup>A</sup> disadvantage<sup>of theseconddatasetis</sup> that as a single cross section, there is no temporal variation in<sup>wages.Thus,weidentifythe production</sup> parameters by dividing the observations into two subsamples containing<sup>the householdsinthe northeast</sup> 18See Jeong (1999) and Jeong and Townsend (2000) for details.

1<sup>9</sup> Robert M. Townsend is the principal investigator for this survey.<sup>SeeTownsendetal.(1997).</sup>

> 2 0Reassuringly, Table 1C in Paulson and Townsend (2001) shows that the initial investment necessary to open a business is the roughly same in both regions among the most common<sup>types of businesses</sup>

> 2 1The percentage of households m non-farm businesses is 13 percent and 28 percent in the central vs northeast regions. The fraction of the population with access to formal credit (from<sup>commercialbanks or BAAC)is 34percentand 55percent</sup> for non-business vs business, respectively, in the northeast<sup>region,and48 percentand73percent,respectively,forthe</sup> central region.

22Paulson and Townsend (2001) provide a much more extensive discussion<sup>of the original data,the derivationof variables</sup> to match those of the LEB model, additional maximum likelihood<sup>estimates of the LEBmodel andthe relationship of LEB</sup> estimates to those of various other models of occupation choice. However,<sup>themaximumlikelihoodprocedureinPaulson</sup> and Townsend (2001) is different to the one discussed here in that<sup>no attemptis madeto recoverthe underlyingproduction</sup> parameters.

> 23 These households, however, could have borrowed from friends and relatives, although the bulk of the borrowmg through this source consists of consumption loans rather than business<sup>investments.</sup>

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