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Barriers to Household Risk Management: Evidence from India

Author(s)
Cole, Shawn; Gine, Xavier; Tobacman, Jeremy; Topalova, Petia; Townsend, Robert; Vickery, James; ... Show more Show less
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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.
Date issued
2013-1
URI
http://hdl.handle.net/1721.1/73597
Department
Massachusetts Institute of Technology. Department of Economics
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
ISSN
0003–6846
1466–4283

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