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Insurance versus Savings for the Poor: Why One Should Offer Either Both or None

Author

Listed:
  • Landmann, Andreas

    () (Paris School of Economics)

  • Vollan, Björn

    () (University of Mannheim)

  • Frölich, Markus

    () (University of Mannheim)

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 voluntary 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. The implication for policy is that microsavings should be offered simultaneously with microinsurance.

Suggested Citation

  • Landmann, Andreas & Vollan, Björn & Frölich, Markus, 2012. "Insurance versus Savings for the Poor: Why One Should Offer Either Both or None," IZA Discussion Papers 6298, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6298
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    References listed on IDEAS

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    1. 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.
    2. Emily Breza & Arun G. Chandrasekhar & Horacio Larreguy, 2014. "Social Structure and Institutional Design: Evidence from a Lab Experiment in the Field," NBER Working Papers 20309, National Bureau of Economic Research, Inc.
    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. Margherita Comola & Marcel Fafchamps, 2010. "Are gifts and loans between households voluntary?," PSE Working Papers halshs-00564894, HAL.
    5. Traxler, Christian, 2010. "Social norms and conditional cooperative taxpayers," European Journal of Political Economy, Elsevier, vol. 26(1), pages 89-103, March.
    6. Brune, Lasse & Gine, Xavier & Goldberg, Jessica & Yang, Dean, 2011. "Commitments to save : a field experiment in rural Malawi," Policy Research Working Paper Series 5748, The World Bank.
    7. 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.
    8. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
    9. Gin, Xavier & Yang, Dean, 2009. "Insurance, credit, and technology adoption: Field experimental evidencefrom Malawi," Journal of Development Economics, Elsevier, vol. 89(1), pages 1-11, May.
    10. Juan Camilo Cardenas & Jeffrey Carpenter, 2008. "Behavioural Development Economics: Lessons from Field Labs in the Developing World," Journal of Development Studies, Taylor & Francis Journals, vol. 44(3), pages 311-338.
    11. Nadja Trhal & Ralf Radermacher, 2006. "Bad luck vs. self-inflicted neediness – An experimental investigation of gift giving in a solidarity game," Working Paper Series in Economics 28, University of Cologne, Department of Economics, revised 07 Mar 2008.
    12. Pascaline Dupas & Jonathan Robinson, 2013. "Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 163-192, January.
    13. Fafchamps, Marcel & Gubert, Flore, 2007. "The formation of risk sharing networks," Journal of Development Economics, Elsevier, vol. 83(2), pages 326-350, July.
    14. Nava Ashraf & Dean Karlan & Wesley Yin, 2006. "Tying Odysseus to the Mast: Evidence From a Commitment Savings Product in the Philippines," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 635-672.
    15. Hoff, Karla & Sen, Arijit, 2005. "The kin system as a poverty trap?," Policy Research Working Paper Series 3575, The World Bank.
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    Citations

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    Cited by:

    1. Florian Klohn & Christoph Strupat, 2013. "Crowding out of Solidarity? – Public Health Insurance versus Informal Transfer Networks in Ghana," Ruhr Economic Papers 0432, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. Renate Strobl & Conny Wunsch, 2017. "Does Voluntary Risk Taking Affect Solidarity? Experimental Evidence from Kenya," CESifo Working Paper Series 6578, CESifo Group Munich.
    3. Martin Eling & Shailee Pradhan & Joan T Schmit, 2014. "The Determinants of Microinsurance Demand," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 39(2), pages 224-263, April.
    4. Johannes G. Jaspersen, 2016. "Hypothetical Surveys And Experimental Studies Of Insurance Demand: A Review," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(1), pages 217-255, January.
    5. Landmann, Andreas & Frölich, Markus, 2015. "Can health-insurance help prevent child labor? An impact evaluation from Pakistan," Journal of Health Economics, Elsevier, vol. 39(C), pages 51-59.
    6. Czura, Kristina & Dequiedt, Vianney, 2015. "Willingness-to-pay for microinsurance and flexibility: Evidence from an agricultural investment lab-in-the-field experiment in Senegal," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112993, Verein für Socialpolitik / German Economic Association.
    7. 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).
    8. repec:zbw:rwirep:0432 is not listed on IDEAS
    9. Klohn, Florian & Strupat, Christoph, 2013. "Crowding out of Solidarity? – Public Health Insurance versus Informal Transfer Networks in Ghana," Ruhr Economic Papers 432, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    10. Nigus, Halefom & Nillesen, Eleonora & Mohnen, Pierre, 2018. "The effect of weather index insurance on social capital: Experimental evidence from Ethiopia," MERIT Working Papers 007, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    11. repec:eee:wdevel:v:104:y:2018:i:c:p:212-221 is not listed on IDEAS
    12. Uri Gneezy & Alex Imas, 2016. "Lab in the Field: Measuring Preferences in the Wild," CESifo Working Paper Series 5953, CESifo Group Munich.

    More about this item

    Keywords

    insurance; savings; informal risk sharing; crowding out; field lab experiment; Philippines;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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