The Introduction of Formal Insurance and its Effect on Redistribution

52 Pages Posted: 25 Apr 2019

See all articles by Dan Anderberg

Dan Anderberg

University of London, Royal Holloway College - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Beata Smarzynska Javorcik

University of Oxford - Department of Economics

Date Written: 2019

Abstract

Transfers motivated by altruism, norms of giving, and guilt play an important role in supporting individuals who suffer losses due to risk. We present empirical evidence from an artefactual field experiment in Ethiopia in which we introduce formal insurance in a setting where donors make redistributive transfers to anonymously paired recipients. We find that donors reduce their transfers to recipients who don’t take-up insurance, and that this effect is larger for donors who hold the ex ante belief that the recipient is more likely to take-up insurance. The findings are consistent with a model of a norm of giving where donors feel guilty for deviating from the norm. The feelings of guilt decline with the expected social distance, that is revealed by the recipients’ observable insurance uptake decisions. The model highlights how the introduction of formal insurance may erode norms of giving and lead vulnerable groups to face more volatile consumption.

Keywords: formal insurance, transfers, norms of giving, guilt, social distance

JEL Classification: D640, D910, G220, O160, O170

Suggested Citation

Anderberg, Dan and Smarzynska Javorcik, Beata, The Introduction of Formal Insurance and its Effect on Redistribution (2019). CESifo Working Paper No. 7596, Available at SSRN: https://ssrn.com/abstract=3377693

Dan Anderberg (Contact Author)

University of London, Royal Holloway College - Department of Economics ( email )

Royal Holloway College
Egham
Surrey, Surrey TW20 0EX
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Beata Smarzynska Javorcik

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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