The Social Dilemma of Microinsurance: A Framed Field Experiment on Free-Riding and Coordination
AbstractHealth 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 InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 12-145/V.
Date of creation: 18 Dec 2012
Date of revision: 23 Jan 2014
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Web page: http://www.tinbergen.nl
Health insurance; microfinance; risk-sharing; public goods experiment;
Find related papers by JEL classification:
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
- NEP-EXP-2013-01-07 (Experimental Economics)
- NEP-IAS-2013-01-07 (Insurance Economics)
- NEP-MFD-2013-01-07 (Microfinance)
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