Barriers to Household Risk Management: Evidence from India
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Author(s)
Cole, Shawn
Gine, Xavier
Tobacman, Jeremy
Topalova, Petia
Townsend, Robert
Vickery, James
Date Issued
January 2013
Journal
American Economic Journal: Applied Economics
Publisher
Taylor & Francis Group
Citation
Cole, Shawn, Xavier Giné, Jeremy Tobacman, Petia Topalova, Robert Townsend, and James Vickery. 2013. "Barriers to Household Risk Management: Evidence from India." American Economic Journal: Applied Economics, 5(1): 104-35.
Version
Author's final manuscript
Abstract
Why do many households remain exposed to large exogenoussources 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. We find demand is significantly price-elastic, but that even if
insurance were offered with payout ratios similar to US, widespread coverage would not
be achieved. We then identify key non-price frictions that limit demand: liquidity
constraints, particularly among poor households, lack of trust, and limited salience. We
suggest potential improvements in contract design to mitigate these frictions.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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Creative Commons Attribution-Noncommercial-Share Alike 3.0
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DOI of Published Version
http://dx.doi.org/10.1257/app.5.1.104
https://doi.org/10.1257/app.5.1.104
