Barriers to Household Risk Management: Evidence from India.
Why do many households remain exposed to large exogenous sources 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. Demand is significantly price sensitive, but widespread take-up would not be achieved even if the product offered a payout ratio comparable to U.S. insurance contracts. We present evidence suggesting that lack of trust, liquidity constraints and limited salience are significant non-price frictions that constrain demand. We suggest contract design improvements to mitigate these frictions.
Cole: Harvard Business School, J-PAL, and BREAD, scole@hbs.edu ; Gine: World Bank and BREAD, xgine@worldbank.org ; Tobacman: Wharton and NBER, tobacman@wharton.upenn.edu ; Townsend: MIT and NBER, rtownsen@mit.edu ; Topalova: International Monetary Fund, ptopalova@imf.org ; Vickery: Federal Reserve Bank of New York.
Shawn
S
Cole
Cole: Harvard Business School, J-PAL, and BREAD, scole@hbs.edu ; Gine: World Bank and BREAD, xgine@worldbank.org ; Tobacman: Wharton and NBER, tobacman@wharton.upenn.edu ; Townsend: MIT and NBER, rtownsen@mit.edu ; Topalova: International Monetary Fund, ptopalova@imf.org ; Vickery: Federal Reserve Bank of New York.
Xavier
X
Giné
Cole: Harvard Business School, J-PAL, and BREAD, scole@hbs.edu ; Gine: World Bank and BREAD, xgine@worldbank.org ; Tobacman: Wharton and NBER, tobacman@wharton.upenn.edu ; Townsend: MIT and NBER, rtownsen@mit.edu ; Topalova: International Monetary Fund, ptopalova@imf.org ; Vickery: Federal Reserve Bank of New York.
Jeremy
J
Tobacman
Cole: Harvard Business School, J-PAL, and BREAD, scole@hbs.edu ; Gine: World Bank and BREAD, xgine@worldbank.org ; Tobacman: Wharton and NBER, tobacman@wharton.upenn.edu ; Townsend: MIT and NBER, rtownsen@mit.edu ; Topalova: International Monetary Fund, ptopalova@imf.org ; Vickery: Federal Reserve Bank of New York.
Robert
R
Townsend
Cole: Harvard Business School, J-PAL, and BREAD, scole@hbs.edu ; Gine: World Bank and BREAD, xgine@worldbank.org ; Tobacman: Wharton and NBER, tobacman@wharton.upenn.edu ; Townsend: MIT and NBER, rtownsen@mit.edu ; Topalova: International Monetary Fund, ptopalova@imf.org ; Vickery: Federal Reserve Bank of New York.
Petia
P
Topalova
Cole: Harvard Business School, J-PAL, and BREAD, scole@hbs.edu ; Gine: World Bank and BREAD, xgine@worldbank.org ; Tobacman: Wharton and NBER, tobacman@wharton.upenn.edu ; Townsend: MIT and NBER, rtownsen@mit.edu ; Topalova: International Monetary Fund, ptopalova@imf.org ; Vickery: Federal Reserve Bank of New York.
James
J
Vickery
Economic Development; Financial Literacy; Household Finance; Insurance; Liquidity Constraints; Trust