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The Subjective Well-being Effects of Imperfect Insurance that Doesn’t Pay Out

Listed author(s):
  • Hirfrfot, Kibrom
  • Barrett, Christopher B.
  • Lentz, Erin C.
  • Taddesse, Birhanu

In this paper we estimate the effects of an imperfect insurance coverage on subjective well-being of a poor, rural population, by exploring whether insurance in force improves subjective well-being and whether insurance that lapsed but did not pay out leads to ex post buyer’s remorse. Exploiting randomization of incentives to purchase a newly introduced index-based livestock insurance product, we establish that even a product that did not pay out generates significant gains in well-being, on average, and that the result is robust to a host of alternative estimation approaches. We also establish that those who purchase insurance that does not pay out experience buyer’s remorse, although the magnitude of this effect is considerably smaller than that of possessing insurance, so that even an agent who can reasonably anticipate subsequent buyer’s remorse in the event that no indemnity is triggered will find it rational to purchase the product.

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File URL: http://purl.umn.edu/173478
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Paper provided by Agricultural and Applied Economics Association in its series 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota with number 173478.

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Date of creation: 2014
Handle: RePEc:ags:aaea14:173478
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  1. George Loewenstein, 2000. "Emotions in Economic Theory and Economic Behavior," American Economic Review, American Economic Association, vol. 90(2), pages 426-432, May.
  2. Krueger, Alan B. & Schkade, David A., 2008. "The reliability of subjective well-being measures," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1833-1845, August.
  3. Shawn Cole & Xavier Gine & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2013. "Barriers to Household Risk Management: Evidence from India," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 104-135, January.
  4. Fafchamps, Marcel & Shilpi, Forhad, 2008. "Subjective welfare, isolation, and relative consumption," Journal of Development Economics, Elsevier, vol. 86(1), pages 43-60, April.
  5. Ravallion, Martin, 2012. "Poor, or just feeling poor ? on using subjective data in measuring poverty," Policy Research Working Paper Series 5968, The World Bank.
  6. Beegle, Kathleen & Himelein, Kristen & Ravallion, Martin, 2012. "Frame-of-reference bias in subjective welfare," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 556-570.
  7. Michael Carter & Christopher Barrett, 2006. "The economics of poverty traps and persistent poverty: An asset-based approach," Journal of Development Studies, Taylor & Francis Journals, vol. 42(2), pages 178-199.
  8. Christopher B. Barrett & Michael R. Carter, 2013. "The Economics of Poverty Traps and Persistent Poverty: Empirical and Policy Implications," Journal of Development Studies, Taylor & Francis Journals, vol. 49(7), pages 976-990, July.
  9. Cossins, Noel J. & Upton, Martin, 1987. "The Borana pastoral system of Southern Ethiopia," Agricultural Systems, Elsevier, vol. 25(3), pages 199-218.
  10. repec:cup:apsrev:v:98:y:2004:i:01:p:191-207_00 is not listed on IDEAS
  11. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, July.
  12. Travis J. Lybbert & Christopher B. Barrett & Solomon Desta & D. Layne Coppock, 2004. "Stochastic wealth dynamics and risk management among a poor population," Economic Journal, Royal Economic Society, vol. 114(498), pages 750-777, October.
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