A Life Insurance Deterrent to Risky Behavior in Africa
Pedro de Araujo
University of Wisconsin - La Crosse – Department of Economics
June 22, 2010
Colorado College Working Paper No. 2010-04
The spread of HIV and AIDS and risky sexual behavior continues to be a problem in Sub-Saharan African countries despite government measures to educate people on the risk and severity of the disease and measures to promote safe sex practices such as making condoms readily available at reduced or no cost. We examine whether people decide to engage in risky sexual behavior due to low income and low life expectancy. Sub-Saharan Africa is characterized by conditions that significantly reduce life expectancy such as unsanitary conditions prevalent in poverty stricken areas, inaccessibility to health care, and dangerous working conditions such as those in very poor mining regions. Moreover, since income per capita in these countries is very low, the opportunity cost associated with dying from AIDS and foregoing future consumption is very low. We examine how a government provided life insurance benefit may be an effective means of deterring risky sexual behavior. To evaluate this policy prescription we develop a life-cycle model with personal and family consumption and endogenous probability of survival. In the model, agents can receive life insurance benefits if their death is not the result of AIDS. We demonstrate that excessive risky behavior does result from low life expectancy and low levels of income and illustrate the conditions for which the life insurance benefit can replicate the effects of higher income and life expectancy, deterring risky sexual behavior and reducing the spread of HIV/AIDS.
Number of Pages in PDF File: 45
Keywords: AIDS, life-cycle, life expectancy
JEL Classification: H51, I18, I38
Date posted: June 23, 2010
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