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 01, 2012
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
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): Household credit | Risk management

Author's Keyword(s): Insurance | Household Finance | Trust | Liquidity Constraints | Economic Development
Publication Date: July 01, 2012
ISBN/ISSN: 9781475505443/1018-5941 Format: Paper
Stock No: WPIEA2012195 Pages: 43
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