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Barriers to household risk management : evidence from India
Author:Cole, Shawn; Gine, Xavier; Tobacman, Jeremy; Topalova, Petia; Townsend, Robert; Vickery, James; Collection Title:Policy Research working paper ; no. WPS 5504
Country:India; Date Stored:2010/12/13
Document Date:2010/12/01Document Type:Policy Research Working Paper
SubTopics:Financial Literacy; Access to Finance; Emerging Markets; Debt Markets; Labor PoliciesLanguage:English
Major Sector:Agriculture, fishing, and forestryRel. Proj ID:1W-Survey On Weather Based Insurance In Andhra Pradesh -- -- P092644;
Region:South AsiaReport Number:WPS5504
Sub Sectors:Agricultural extension and researchVolume No:1 of 1

Summary: Why do many households remain exposed to large exogenous sources of non-systematic income risk? This paper uses 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. The analysis finds that demand is significantly price-elastic, but that even if insurance were offered with payout ratios similar to US, widespread coverage would not be achieved. The paper identifies key non-price frictions that limit demand: liquidity constraints, particularly among poor households, lack of trust, and limited salience. The authors suggest potential improvements in contract design to mitigate these frictions.

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