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The social dilemma of microinsurance: Free-riding in a framed field experiment

Listed author(s):
  • Janssens, Wendy
  • Kramer, Berber

Health shocks are among the most important unprotected risks for microfinance clients, but take-up of micro health insurance remains low. A framed field experiment with credit groups in Tanzania, eliciting demand for group versus individual insurance, attributes this to a social dilemma. In a context of joint liability, insurance is a public good because clients can rely on contributions from group members to cope with health shocks. We hypothesize that clients have a private incentive to free-ride and forgo individual insurance even when full enrollment optimizes group welfare. The binding nature of group insurance eliminates such free-riding. Our experiment yields substantial support for this hypothesis. Whereas the demand for group insurance is high, a substantial share of clients forgoes individual insurance and relies on peers to repay their loan when falling ill. Group insurance can potentially increase low take-up rates.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167268116300166
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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 131 (2016)
Issue (Month): PB ()
Pages: 47-61

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Handle: RePEc:eee:jeborg:v:131:y:2016:i:pb:p:47-61
DOI: 10.1016/j.jebo.2016.03.003
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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