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The Social Dilemma of Microinsurance: A Framed Field Experiment on Free-Riding and Coordination

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Author Info

  • Wendy Janssens

    (VU University Amsterdam)

  • Berber Kramer

    (VU University Amsterdam)

Abstract

Health shocks are among the most important unprotected risks for microfinance clients, but the take-up of micro health insurance typically remains limited. This paper attributes low enrolment rates to a social dilemma. Our theory is that in jointly liable groups, insurance is a public good. Clients can rely on contributions from group members to cope with shocks. Less risk averse clients have a private incentive to free-ride and forgo individual insurance even when insurance optimises group welfare. The binding nature of group insurance eliminates such free-riding. A framed public goods experiment with microcredit groups in Tanzania, eliciting demand for group versus individual microinsurance, yields substantial support for this hypothesis. This provides a potential explanation for low take-up rates.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 12-145/V.

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Date of creation: 18 Dec 2012
Date of revision: 23 Jan 2014
Handle: RePEc:dgr:uvatin:20120145

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Web page: http://www.tinbergen.nl

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Keywords: Health insurance; microfinance; risk-sharing; public goods experiment;

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