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Reinsuring the Poor: Group Microinsurance Design and Costly State Verification


  • Daniel J. Clarke


This paper analyses collusion-proof multilateral insurance contracts between a risk neutral insurer and multiple risk averse agents in an environment of asymmetric costly state verification. Optimal contracts involve the group of agents pooling uncertainty and the insurer acting as reinsurer to the group, auditing and paying a claim only when the group or a sub-group has incurred a large enough aggregate loss. We interpret our models as providing support for insurance contracts between insurance providers, such as microinsurers or governments, and groups of individuals who have access to cheap information about each other, such as extended families or members of close-knit communities. Such formal contracts complement, and could even crowd in, cheap nonmarket insurance arrangements.

Suggested Citation

  • Daniel J. Clarke, 2011. "Reinsuring the Poor: Group Microinsurance Design and Costly State Verification," Economics Series Working Papers 573, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:573

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    References listed on IDEAS

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    Cited by:

    1. Michael R. CARTER & Alain de JANVRY & Elisabeth SADOULET & Alexandros SARRIS, 2014. "Index-based weather insurance for developing countries: A review of evidence and a set of propositions for up-scaling," Working Papers P111, FERDI.
    2. repec:eee:eecrev:v:101:y:2018:i:c:p:230-249 is not listed on IDEAS
    3. de Janvry, A. & Dequiedt, V. & Sadoulet, E., 2014. "The demand for insurance against common shocks," Journal of Development Economics, Elsevier, vol. 106(C), pages 227-238.
    4. De Janvry,Alain F., 2015. "Quantifying through ex post assessments the micro-level impacts of sovereign disaster risk financing and insurance programs," Policy Research Working Paper Series 7356, The World Bank.
    5. Daniel J. Clarke, 2016. "A Theory of Rational Demand for Index Insurance," American Economic Journal: Microeconomics, American Economic Association, vol. 8(1), pages 283-306, February.
    6. 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


    Microinsurance; Group insurance; Costly state verification; Mechanism design;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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