Barriers to Household Risk Management: Evidence from India
July 1, 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.
Subject: Asset and liability management, Consumption, Education, Financial institutions, Insurance, Insurance companies, Liquidity, National accounts
Keywords: Africa, Andhra Pradesh sample, Consumption, Economic Development, expected return, financial product, Gujarat video experiment, Gujarat video treatment, Household Finance, Insurance, Insurance companies, insurance demand, Liquidity, Liquidity Constraints, payout slope, product diffusion, product endorsement, Trust, WP
Pages:
43
Volume:
2012
DOI:
Issue:
195
Series:
Working Paper No. 2012/195
Stock No:
WPIEA2012195
ISBN:
9781475505443
ISSN:
1018-5941
