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Background Risk of Food Insecurity and Insurance Behaviour: Evidence from the West Bank

  • Cavatorta, Elisa


    (SOAS, University of London)

  • Pieroni, Luca


    (University of Perugia)

This paper explores behavioural changes resulting from the presence of a back-ground risk. Due to markets incompleteness, not all risks are insurable. The literature suggests that, according to the structure of preferences, agents bearing a background uninsurable risk are less willing to bear other insurable risks and increase their demand for insurance. The empirical evidence of this effect is limited and, despite the relevance of this question, unexplored in developing countries. This paper fills this gap. It explores the effect of a background risk on the decision to buy health insurance using household data from the Palestinian Territories. We consider the risk of food insecurity as a background uninsurable risk. Using a bivariate probit model, we find that the propensity to buy health insurance is positively affected by the presence of a background risk of food insecurity. When allowing the back-ground risk to vary in intensity, we find that the propensity to insure is higher as the background risk becomes more intense. These results are robust to alternative indicators of background risk. The study shows that, in presence of background risks, there might be incentive changes towards the desirability of insurance that have implications for policy design.

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Paper provided by Network of European Peace Scientists in its series NEPS Working Papers with number 6/2012.

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Length: 39 pages
Date of creation: 05 Sep 2012
Date of revision:
Handle: RePEc:ris:nepswp:2012_006
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  1. Viscusi, W Kip & Evans, William N, 1990. "Utility Functions That Depend on Health Status: Estimates and Economic Implications," American Economic Review, American Economic Association, vol. 80(3), pages 353-74, June.
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  9. Guiso, Luigi & Jappelli, Tullio, 1996. "Background Uncertainty and the Demand for Insurance Against Insurable Risks," CEPR Discussion Papers 1423, C.E.P.R. Discussion Papers.
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  12. Abu-Zaineh, Mohammad & Mataria, Awad & Luchini, Stéphane & Moatti, Jean-Paul, 2008. "Equity in health care financing in Palestine: The value-added of the disaggregate approach," Social Science & Medicine, Elsevier, vol. 66(11), pages 2308-2320, June.
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  15. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January.
  16. Levon Barseghyan & Jeffrey Prince & Joshua C. Teitelbaum, 2011. "Are Risk Preferences Stable across Contexts? Evidence from Insurance Data," American Economic Review, American Economic Association, vol. 101(2), pages 591-631, April.
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