American Economic Review: Vol. 92 No. 1 (March 2002)


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Insuring Consumption Against Illness

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Gertler, Paul, and Jonathan Gruber. 2002. "Insuring Consumption Against Illness ." American Economic Review, 92(1): 51-70.

DOI: 10.1257/000282802760015603


One of the most sizable and least predictable shocks to economic opportunities in developing countries is major illness. We investigate the extent to which families are able to insure consumption against major illness using a unique panel data set from Indonesia that combines excellent measures of health status with consumption information. We find that there are significant economic costs associated with major illness, and that there is very imperfect insurance of consumption over illness episodes. These estimates suggest that public disability insurance or subsidies for medical care may improve welfare by providing consumption insurance. (JEL O0, H1)

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Gertler, Paul (Haas School of Business, University of California, Berkeley, CA 94720, US)
Gruber, Jonathan (Department of Economics, E52-355, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, MA, 02142, US)

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