Cole, Shawn; Giné, Xavier; Tobacman, Jeremy; Topalova, Petia; Townsend, Robert; Vickery, James
Description:
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.