Why do many households remain exposed to large exogenous
sources of nonsystematic income risk? We use a series of randomized
field experiments in rural India to test the importance of price and
nonprice 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 US insurance contracts. We present evidence
suggesting that lack of trust, liquidity constraints, and limited
salience are significant nonprice frictions that constrain demand.
We suggest possible contract design improvements to mitigate these
frictions. (JEL D14, D81, O12, O13, O16, O18, Q12)
Cole, Shawn, Xavier Giné, Jeremy Tobacman, Petia Topalova, Robert Townsend, and James Vickery.
"Barriers to Household Risk Management: Evidence from India."
American Economic Journal: Applied Economics,
Criteria for Decision-Making under Risk and Uncertainty
Microeconomic Analyses of Economic Development
Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets