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Barriers to Household Risk Management: Evidence from India


Shawn Allen Cole


Harvard Business School

Xavier Giné


World Bank - Development Research Group (DECRG)

Jeremy Tobacman


University of Pennsylvania; NBER

Robert M. Townsend


Massachusetts Institute of Technology (MIT)

Petia B. Topalova


International Monetary Fund (IMF)

James I. Vickery


Federal Reserve Bank of New York

April 11, 2012

American Economic Journal: Applied Economics, 5(1), 104-35
Harvard Business School Finance Working Paper No. 09-116
FRB of New York Staff Report No. 373

Abstract:     
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.

Number of Pages in PDF File: 55

Keywords: Insurance, Household Finance, Trust, Liquidity Constraints, Financial Literacy, Economic Development

JEL Classification: G22, C93, O16, D14, G11, G20

Accepted Paper Series


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Date posted: April 9, 2009 ; Last revised: January 22, 2013

Suggested Citation

Cole, Shawn Allen and Giné, Xavier and Tobacman, Jeremy and Townsend, Robert M. and Topalova, Petia B. and Vickery, James I., Barriers to Household Risk Management: Evidence from India (April 11, 2012). Harvard Business School Finance Working Paper No. 09-116; American Economic Journal: Applied Economics, 5(1), 104-35; Harvard Business School Finance Working Paper No. 09-116; FRB of New York Staff Report No. 373. Available at SSRN: http://ssrn.com/abstract=1374076 or http://dx.doi.org/10.2139/ssrn.1374076

Contact Information

Shawn Allen Cole (Contact Author)
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
Xavier Gine
World Bank - Development Research Group (DECRG) ( email )
1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
HOME PAGE: https://sites.google.com/site/decrgxaviergine/
Jeremy Bruce Tobacman
University of Pennsylvania ( email )
3641 Locust Walk
Philadelphia, PA 19104-6372
United States

NBER ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Robert M. Townsend
Massachusetts Institute of Technology (MIT) ( email )
77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States
Petia B. Topalova
International Monetary Fund (IMF) ( email )
700 19th Street N.W.
Washington, DC 20431
United States
James Ian Vickery
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
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