Barriers to Household Risk Management: Evidence from India

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Details

Author(s):
Shawn Allen Cole; Xavier Gine; Jeremy Tobacman; Petia B. Topalova; Robert M. Townsend; James I. Vickery

Type of Document:
Research Report

 

Publisher/Journal:
Harvard Business School

Date of Publication:
2012/04/11

Place of Publication:
unpublished

Description

Abstract: 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.

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