Barriers to Household Risk Management: Evidence from India
IMF Working Papers, July 1, 2012
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- Barriers to Household Risk Management: Evidence from India
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Bibliographic details
- Authors: Robert M. Townsend, Shawn Cole, Jeremy Tobacman, Xavier Gine, James Ian Vickery, Petia Topalova
- Published: July 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475505443.001
Overview and Research Question
- Authors: Robert M. Townsend, Shawn Cole, Jeremy Tobacman, Xavier Gine, James Ian Vickery, Petia Topalova
- Date: July 1, 2012
- Working Paper No.: 2012/195
- Issue: 195
- Pages: 43
- DOI: https://doi.org/10.5089/9781475505443.001
- ISBN: 9781475505443
- ISSN: 1018-5941
- Core question: Why do many households remain exposed to large exogenous sources of non-systematic income risk?
Methods
- Approach: A series of randomized field experiments in rural India testing price and non-price factors in adoption of an innovative rainfall insurance product.
- Experimental treatments include variation in price and non-price interventions (e.g., information/endorsement treatments noted as "Gujarat video experiment" and "Gujarat video treatment" in keywords).
Key Findings
- Demand is significantly price sensitive.
- Widespread take-up would not be achieved even if the product offered a payout ratio comparable to U.S. insurance contracts.
- Evidence identifies significant non-price frictions constraining demand:
- Lack of trust
- Liquidity constraints
- Limited salience
- The study documents implications for product diffusion and insurance demand.
Policy Implications and Contract Design Suggestions
- Contract design improvements are suggested to mitigate the identified frictions (lack of trust, liquidity constraints, limited salience).
- Suggested directions implied by findings:
- Address trust barriers potentially through endorsements or credible intermediaries.
- Design liquidity-friendly payment or savings mechanisms to relax liquidity constraints.
- Increase salience of insurance benefits through targeted communication or presentation formats.
Subjects and Keywords (as listed)
- Subjects: 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
IMF Working Paper — Barriers to Household Risk Management: Evidence from India, Working Paper No. 2012/195 (July 1, 2012).