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Informal Insurance and Moral Hazard: Gambling and Remittances in Thailand

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  • Douglas Miller

    (Princeton University)

  • Anna Paulson

    (Northwestern University)

Abstract

More than 35% of Thai households either give or receive remittances, and remittances account for about one-third of the income of the receiving households. Remittances may be an important source of protection against adverse events for the receiving household. This paper provides evidence that remittances behave in a way that is consistent with insurance: they are sensitive to shocks to regional rainfall and they respond to household level events. The paper goes on to examine whether there is evidence of moral hazard in the informal insurance contracts that link households who send and receive remittances. Specifically, we examine how the quality of insurance that is offered through remittances affects the probability and the amount of gambling done by households that either send or receive remittances. The evidence is consistent with moral hazard: households who remit are more likely to gamble and gamble more the higher the potential quality of insurance between the sending and the receiving province. Alternatively, the results can be interpreted to indicate that households who are more insured shift their portfolios toward riskier investments.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1463.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1463

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  1. Stark, Oded & Bloom, David E, 1985. "The New Economics of Labor Migration," American Economic Review, American Economic Association, American Economic Association, vol. 75(2), pages 173-78, May.
  2. Rosenzweig, Mark R. & Stark, Oded, 1987. "Consumption Smoothing, Migration and Marriage: Evidence from Rural India," Bulletins, University of Minnesota, Economic Development Center 7515, University of Minnesota, Economic Development Center.
  3. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 15-33, March.
  4. Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center, Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
  5. Cox, Donald & Jimenez, Emmanuel, 1990. "Achieving Social Objectives through Private Transfers: A Review," World Bank Research Observer, World Bank Group, World Bank Group, vol. 5(2), pages 205-18, July.
  6. Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," World Bank Economic Review, World Bank Group, World Bank Group, vol. 4(3), pages 251-69, September.
  7. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(439), pages 1515-26, November.
  8. Lee Lillard & Robert Willis, 1997. "Motives for interqenerational transfers: Evidence from Malaysia," Demography, Springer, Springer, vol. 34(1), pages 115-134, February.
  9. Warneryd, Karl-Erik, 1996. "Risk attitudes and risky behavior," Journal of Economic Psychology, Elsevier, Elsevier, vol. 17(6), pages 749-770, December.
  10. Hans Binswanger, 1980. "Attitudes toward risk: Experimental measurement in rural india," Artefactual Field Experiments, The Field Experiments Website 00009, The Field Experiments Website.
  11. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 928-56, October.
  12. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(5), pages 901-18, October.
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Cited by:
  1. Lykke E. Andersen & Bent Jesper Christensen & Oscar Molina, 2005. "The Impact of Aid on Recipient Behavior: A Micro-Level Dynamic Analysis of Remittances, Schooling, Work, Consumption, Investment and Social Mobility in Nicaragua," Development Research Working Paper Series 02/2005, Institute for Advanced Development Studies.
  2. Calero, C. & Bedi, A.S. & Sparrow, R.A., 2008. "Remittances, liquidity constraints and human capital investments in Ecuador," ISS Working Papers - General Series, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague 18735, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
  3. McKernan, Signe-Mary & Pitt, Mark M. & Moskowitz, David, 2005. "Use of the formal and informal financial sectors : does gender matter? empirical evidence from rural Bangladesh," Policy Research Working Paper Series 3491, The World Bank.
  4. Ingela Alger & Jörgen Weibull, 2008. "The fetters of the sib: Weber meets Darwin," Working Papers hal-00354241, HAL.
  5. Ingela Alger & Jörgen W. Weibull, 2007. "Family ties, incentives and development: A model of coerced altruism," Carleton Economic Papers 07-10, Carleton University, Department of Economics, revised 2008.
  6. Nnaemeka Chukwuone & Ebele Amaechina & Sunday Emeka Enebeli-Uzor & Evelyn Iyoko & Benjamin Okpukpara, 2012. "Analysis of Impact of Remittance on Poverty in Nigeria," Working Papers PMMA, PEP-PMMA 2012-09, PEP-PMMA.

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