Barriers to Household Risk Management : Evidence from India

Author/Editor:

Robert M. Townsend ; Shawn Cole ; Jeremy Tobacman ; Xavier Gine ; James Ian Vickery ; Petia Topalova

Publication Date:

July 1, 2012

Electronic Access:

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Summary:

Why do many households remain exposed to large exogenous sources of non-systematic income risk? We use a series of randomized field experiments in rural India to test the importance of price and non-price factors in the adoption of an innovative rainfall insurance product. Demand is significantly price sensitive, but widespread take-up would not be achieved even if the product offered a payout ratio comparable to U.S. insurance contracts. We present evidence suggesting that lack of trust, liquidity constraints and limited salience are significant non-price frictions that constrain demand. We suggest contract design improvements to mitigate these frictions.

Series:

Working Paper No. 12/195

Subject:

English

Publication Date:

July 1, 2012

ISBN/ISSN:

9781475505443/1018-5941

Stock No:

WPIEA2012195

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

43

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