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Saving, Microinsurance: Why You Should Do Both or Nothing. A Behavioral Experiment on the Philippines

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  • Landmann, Andreas
  • Vollan, Björn
  • Frölich, Markus

Abstract

This paper analyzes data from a novel field experiment designed to test the impact of two different insurance products and a secret saving device on solidarity in risk-sharing groups among rural villagers in the Philippines. Risk is simulated by a lottery, risk-sharing is possible in solidarity groups of three and insurance is introduced via less risky lotteries. Our main hypothesis is that formal market-based products lead to lower transfers among network members. We also test for the persistence of this crowding-out of solidarity. We find evidence for a reduction of solidarity by insurance if shocks are observable. Depending on insurance design, there is also evidence for persistence of this effect even if insurance is removed. Simulations using our regression results show that the benefits of insurance are completely offset by the reduction in transfers. However, if secret saving is possible solidarity is very low in general and there is no crowding out effect of insurance. This suggests that introducing formal insurance is not as effective as it is hoped for when the monetary situation can be closely monitored, but that it might be a very important complement when savings inhibit observing financial resources. --

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Bibliographic Info

Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2011 with number 51.

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Date of creation: 2011
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Handle: RePEc:zbw:gdec11:51

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  1. Marcel Fafchamps & Flore Gubert, 2002. "Contingent Loan Repayment in the Philippines," Working Papers DT/2002/14, DIAL (Développement, Institutions et Mondialisation).
  2. Margherita Comola & Marcel Fafchamps, 2010. "Are gifts and loans between households voluntary?," PSE Working Papers halshs-00564894, HAL.
  3. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  4. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
  5. repec:pse:psecon:2009-30 is not listed on IDEAS
  6. Pascaline Dupas & Jonathan Robinson, 2009. "Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya," NBER Working Papers 14693, National Bureau of Economic Research, Inc.
  7. Dercon, Stefan & Krishnan, Pramila, 2002. "Risk Sharing and Public Transfers," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  8. Cole, Shawn & Gine, Xavier & Tobacman, Jeremy & Topalova, Petia & Townsend, Robert & Vickery, James, 2010. "Barriers to household risk management : evidence from India," Policy Research Working Paper Series 5504, The World Bank.
  9. Gubert, Flore & Fafchamps, Marcel, 2007. "The Formation of Risk Sharing Networks," Economics Papers from University Paris Dauphine 123456789/4392, Paris Dauphine University.
  10. Seiro ITO & Hisaki KONO, 2010. "Why Is The Take-Up Of Microinsurance So Low? Evidence From A Health Insurance Scheme In India," The Developing Economies, Institute of Developing Economies, vol. 48(1), pages 74-101.
  11. Gine, Xavier & Yang, Dean, 2007. "Insurance, credit, and technology adoption : field experimental evidence from Malawi," Policy Research Working Paper Series 4425, The World Bank.
  12. Comola, Margherita & Fafchamps, Marcel, 2009. "Testing Unilateral and Bilateral Link Formation," CEPR Discussion Papers 7406, C.E.P.R. Discussion Papers.
  13. Grimm, Michael & Gubert, Flore & Koriko, Ousman & Lay, Jann & Nordman, Christophe Jalil, 2010. "Does Forced Solidarity Hamper Entrepreneurial Activity? Evidence from seven West-African Countries," Economics Papers from University Paris Dauphine 123456789/6812, Paris Dauphine University.
  14. Abigail Barr & Garance Genicot, 2008. "Risk Sharing, Commitment, and Information: An Experimental Analysis," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1151-1185, December.
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