Barriers to Household Risk Management: Evidence from India

By Robert M. Townsend, Shawn Cole, Jeremy Tobacman, Xavier Gine, James Ian Vickery, Petia Topalova

July 1, 2012

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Robert M. Townsend, Shawn Cole, Jeremy Tobacman, Xavier Gine, James Ian Vickery, and Petia Topalova. Barriers to Household Risk Management: Evidence from India, (USA: International Monetary Fund, 2012) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Why do many households remain exposed to large exogenous sources of non-systematic income risk? We use a series of randomized field experiments in rural India to test the importance of price and non-price factors in the adoption of an innovative rainfall insurance product. Demand is significantly price sensitive, but widespread take-up would not be achieved even if the product offered a payout ratio comparable to U.S. insurance contracts. We present evidence suggesting that lack of trust, liquidity constraints and limited salience are significant non-price frictions that constrain demand. We suggest contract design improvements to mitigate these frictions.

Subject: Asset and liability management, Consumption, Education, Financial institutions, Insurance, Insurance companies, Liquidity, National accounts

Keywords: Africa, Andhra Pradesh sample, Consumption, Economic Development, Expected return, Financial product, Gujarat video experiment, Gujarat video treatment, Household Finance, Insurance, Insurance companies, Insurance demand, Liquidity, Liquidity Constraints, Payout slope, Product diffusion, Product endorsement, Trust, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/195
Stock No:

WPIEA2012195
ISBN:

9781475505443
ISSN:

1018-5941

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