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Saving, Microinsurance: Why You Should Do Both or Nothing. A Behavioral Experiment on the Philippines

  • Landmann, Andreas
  • Vollan, Björn
  • Frölich, Markus

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 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.

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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2011 with number 51.

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Date of creation: 2011
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Handle: RePEc:zbw:gdec11:51
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  1. Abigail Barr & Garance Genicot, 2007. "Risk Sharing, Commitment and Information: An experimental analysis," Economics Series Working Papers WPS/2007-17, University of Oxford, Department of Economics.
  2. Fafchamps, Marcel & Gubert, Flore, 2007. "The formation of risk sharing networks," Journal of Development Economics, Elsevier, vol. 83(2), pages 326-350, July.
  3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  4. Marcel Fafchamps & Flore Gubert, 2007. "Contingent Loan Repayment in the Philippines," Economic Development and Cultural Change, University of Chicago Press, vol. 55, pages 633-667.
  5. Margherita Comola & Marcel Fafchamps, 2014. "Testing Unilateral and Bilateral Link Formation," Economic Journal, Royal Economic Society, vol. 124(579), pages 954-976, 09.
  6. Margherita Comola & Marcel Fafchamps, 2010. "Are gifts and loans between households voluntary?," PSE Working Papers halshs-00564894, HAL.
  7. Marcel Fafchamps & Susan Lund, 2000. "Risk-Sharing Networks in Rural Philippines," Economics Series Working Papers 10, University of Oxford, Department of Economics.
  8. Grimm, Michael & Gubert, Flore & Koriko, Ousman & Lay, Jann & Nordman, Christophe Jalil, 2015. "Does forced Solidarity Hamper Entrepreneurial Activity? Evidence from Seven West-African Countries," Economics Papers from University Paris Dauphine 123456789/14825, Paris Dauphine University.
  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. repec:pse:psecon:2009-30 is not listed on IDEAS
  11. Stefan Dercon & Pramila Krishnan, 2003. "Risk Sharing and Public Transfers," Economic Journal, Royal Economic Society, vol. 113(486), pages C86-C94, March.
  12. 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.
  13. Petia Topalova & Shawn Cole & Xavier Gene & Jeremy Tobacman & Robert Townsend & James Vickery, 2011. "Barriers to Household Risk Management: Evidence from India," Working Papers id:4293, eSocialSciences.
  14. Arun G. Chandrasekhar & Cynthia Kinnan & Horacio Larreguy, 2014. "Social Networks as Contract Enforcement: Evidence from a Lab Experiment in the Field," NBER Working Papers 20259, National Bureau of Economic Research, Inc.
  15. Pascaline Dupas & Jonathan Robinson, 2009. "Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya," NBER Working Papers 14693, National Bureau of Economic Research, Inc.
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