Barriers to Household Risk Management: Evidence from India
40 Pages Posted: 20 Apr 2016
Date Written: December 1, 2010
Why do many households remain exposed to large exogenous sources of non-systematic income risk? This paper uses 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. The analysis finds that demand is significantly price-elastic, but that even if insurance were offered with payout ratios similar to US, widespread coverage would not be achieved. The paper identifies key non-price frictions that limit demand: liquidity constraints, particularly among poor households, lack of trust, and limited salience. The authors suggest potential improvements in contract design to mitigate these frictions.
Keywords: Financial Literacy, Debt Markets, Access to Finance, Emerging Markets, Labor Policies
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