The Social Dilemma of Microinsurance: Free-riding in a Framed Field Experiment

Tinbergen Institute Discussion Paper 12-145/V

76 Pages Posted: 21 Dec 2012 Last revised: 15 Sep 2015

See all articles by Wendy Janssens

Wendy Janssens

VU University Amsterdam - Department of Development Economics

Berber Kramer

International Food Policy Research Institute (IFPRI)

Date Written: September 9, 2015

Abstract

Health shocks are among the most important unprotected risks for microfinance clients, but the take-up of micro health insurance typically remains limited. This paper attributes low enrollment rates to a social dilemma. Our theory is that in jointly liable groups, insurance is a public good. Clients can rely on contributions from group members to cope with shocks. Less risk averse clients have a private incentive to free-ride and forgo individual insurance even when insurance optimizes group welfare. The binding nature of insurance offered at the group level eliminates such free-riding. A framed public good experiment in Tanzania, eliciting demand for group versus individual microinsurance, yields substantial support for this hypothesis. This provides a potential explanation for low take-up rates.

Keywords: Health insurance, microfinance, risk-sharing, public goods experiment

JEL Classification: D71, I13, G21

Suggested Citation

Janssens, Wendy and Kramer, Berber, The Social Dilemma of Microinsurance: Free-riding in a Framed Field Experiment (September 9, 2015). Tinbergen Institute Discussion Paper 12-145/V, Available at SSRN: https://ssrn.com/abstract=2191972 or http://dx.doi.org/10.2139/ssrn.2191972

Wendy Janssens (Contact Author)

VU University Amsterdam - Department of Development Economics ( email )

Netherlands

Berber Kramer

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

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