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

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  • Janssens, Wendy
  • Kramer, Berber

Abstract

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.

Suggested Citation

  • Janssens, Wendy & Kramer, Berber, 2016. "The social dilemma of microinsurance: Free-riding in a framed field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PB), pages 47-61.
  • Handle: RePEc:eee:jeborg:v:131:y:2016:i:pb:p:47-61
    DOI: 10.1016/j.jebo.2016.03.003
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    References listed on IDEAS

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    Cited by:

    1. Geng, Xin & Ide, Vera & Janssens, Wendy & Kramer, Berber & van der List, Marijn, 2017. "Health insurance, a friend in need? Evidence from financial and health diaries in Kenya," IFPRI discussion papers 1664, International Food Policy Research Institute (IFPRI).
    2. Baland, Jean-Marie & Gangadharan, Lata & Maitra, Pushkar & Somanathan, Rohini, 2017. "Repayment and exclusion in a microfinance experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 176-190.
    3. Vesely, Stepan & Wengström, Erik, 2017. "Risk and Cooperation: Experimental Evidence from Stochastic Public Good Games," Working Papers 2017:3, Lund University, Department of Economics.
    4. Lenel, Friederike & Steiner, Susan, 2017. "Insurance and Solidarity: Evidence from a Lab-in-the-Field Experiment in Cambodia," IZA Discussion Papers 10986, Institute for the Study of Labor (IZA).
    5. Platteau, Jean-Philippe & De Bock, Ombeline & Gelade, Wouter, 2017. "The Demand for Microinsurance: A Literature Review," World Development, Elsevier, vol. 94(C), pages 139-156.

    More about this item

    Keywords

    Health insurance; Microfinance; Risk-sharing; Public goods experiment;

    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

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