Barriers to Household Risk Management: Evidence from India

 
Author/Editor: Cole, Shawn ; Gine, Xavier ; Tobacman, Jeremy ; Topalova, Petia ; Townsend, Robert M. ; Vickery, James Ian
 
Publication Date: July 01, 2012
 
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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(s): Demand | Household credit | Insurance | Risk management | India

Author's Keyword(s): Insurance | Household Finance | Trust | Liquidity Constraints | Economic Development
 
English
Publication Date: July 01, 2012
Format: Paper
Stock No: WPIEA2012195 Pages: 42
Price:
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