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Informal Insurance and Moral Hazard: Gambling and Remittances in Thailand

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Author Info
Douglas Miller (Princeton University)
Anna Paulson (Northwestern University)

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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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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. Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 251-69, September.
  2. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 901-18, October. [Downloadable!] (restricted)
  3. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
  4. Warneryd, Karl-Erik, 1996. "Risk attitudes and risky behavior," Journal of Economic Psychology, Elsevier, vol. 17(6), pages 749-770, December. [Downloadable!] (restricted)
  5. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-56, October. [Downloadable!] (restricted)
  6. Rosenzweig, Mark R & Stark, Oded, 1989. "Consumption Smoothing, Migration, and Marriage: Evidence from Rural India," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 905-26, August. [Downloadable!] (restricted)
  7. Cox, Donald & Jimenez, Emmanuel, 1990. "Achieving Social Objectives through Private Transfers: A Review," World Bank Research Observer, Oxford University Press, vol. 5(2), pages 205-18, July.
  8. Stark, Oded & Bloom, David E, 1985. "The New Economics of Labor Migration," American Economic Review, American Economic Association, vol. 75(2), pages 173-78, May. [Downloadable!] (restricted)
  9. Hans P. Binswanger, 1980. "Attitudes Toward Risk: Experimental Measurement in Rural India," Artefactual Field Experiments 0008, The Field Experiments Website. [Downloadable!]
  10. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, vol. 82(1), pages 15-33, March. [Downloadable!] (restricted)
  11. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-26, November. [Downloadable!] (restricted)
  12. Lillard, L-A & Willis, R-J, 1997. "Motives for Intergenerational Transfers. Evidence from Malaysia," Papers 97-04, RAND - Reprint Series.
  13. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May. [Downloadable!] (restricted)
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  1. C. Calero & Arjun S. Bedi & R. Sparrow, 2008. "Remittances, liquidity constraints and human capital investments in Ecuador," Working Papers - General Series 458, Institute of Social Studies. [Downloadable!]
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  2. Alger, Ingela & Weibull, Jörgen, 2007. "Family ties, incentives and development: a model of coerced altruism," Working Paper Series in Economics and Finance 681, Stockholm School of Economics. [Downloadable!]
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  3. 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. [Downloadable!]
  4. Ingela Alger & Jörgen Weibull, 2008. "The fetters of the sib: Weber meets Darwin," Working Papers hal-00354241_v1, HAL. [Downloadable!]
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