Barriers to Household Risk Management : Evidence from India

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 inno...

Full description

Bibliographic Details
Main Authors:	Cole, Shawn, Giné, Xavier, Tobacman, Jeremy, Topalova, Petia, Townsend, Robert, Vickery, James
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ADMINISTRATIVE DATA ADMINISTRATIVE RECORDS ADVERSE SELECTION AGRICULTURAL ECONOMICS ASSET HOLDINGS ASSET MARKETS ASSET SALES ASYMMETRIC INFORMATION BEHAVIORAL ECONOMICS BIASES BORROWING BUSINESS SCHOOL CASH ON HAND COLLATERAL COMMODITY COMMODITY PRICE COMMODITY RISK MANAGEMENT COMMUNITY GROUPS CONSUMER CONSUMER CREDIT CONSUMER DURABLES CONSUMER FINANCE CONSUMERS CONSUMPTION EXPENDITURES CONSUMPTION SMOOTHING CONTRACT DESIGN CONTRIBUTION CONTRIBUTIONS COUPON COUPONS CREDIT CONSTRAINTS CREDIT EXPANSION CREDIT REGISTRIES CROP FAILURE DAILY WAGE DEBT DEBT CAPACITY DEMOGRAPHIC DEMOGRAPHIC CHARACTERISTICS DEPOSITS DERIVATIVES DERIVATIVES MARKETS DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DISABILITY DISBURSEMENT DISCOUNT RATE DISCOUNT RATES DIVERSIFICATION DROUGHT DROUGHTS DUMMY VARIABLE DUMMY VARIABLES DURABLE DURABLE GOODS ECONOMIC DEVELOPMENT ECONOMIC RISKS EDUCATION LEVEL EDUCATION LEVELS EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EMPLOYEE EXCHANGE RATE EXOGENOUS INCOME EXPENDITURE EXPOSURE TO RISK FARMER FARMERS FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE SYSTEM FINANCIAL CONSTRAINTS FINANCIAL CONTRACT FINANCIAL DECISION FINANCIAL EDUCATION FINANCIAL EDUCATION PROGRAM FINANCIAL INNOVATION FINANCIAL INNOVATIONS FINANCIAL LITERACY FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL PRODUCTS FINANCIAL QUESTIONS FINANCIAL SERVICES FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEMS FUTURES GENDER GENERAL POPULATION GOVERNMENT SUBSIDIES HOMEOWNER HOMEOWNERS HOMEOWNERS INSURANCE HOUSEHOLD FINANCE HOUSEHOLD INCOME HOUSEHOLD WEALTH HOUSEHOLDS IMPERFECT INFORMATION INCOME INCOME SMOOTHING INCOME VARIABILITY INCOMES INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INSURANCE INDUSTRY INSURANCE MARKET INSURANCE MARKETS INSURANCE POLICIES INSURANCE POLICY INSURANCE PREMIUMS INSURANCE PRODUCT INSURANCE PRODUCTS INSURER INTEREST RATE INTEREST RATES INTERNATIONAL BANK INVENTORY LABORERS LAND HOLDINGS LANDOWNER LEGAL PROTECTIONS LENDER LEVEL OF EDUCATION LEVELS OF RISK LIABILITY LIFE INSURANCE LIMITED ACCESS LIMITED FINANCIAL LITERACY LIMITED LIABILITY LIQUID ASSETS LIQUIDITY LIQUIDITY CONSTRAINTS LOAN LOANS FOR FARMERS LONG-TERM CARE LONG-TERM CARE INSURANCE LOW INCOME LOWER INCOME MARGINAL UTILITY OF CONSUMPTION MARKET COMPETITION MARKET ECONOMIES MARKET FAILURE MARKET PORTFOLIO MARKETING MARKETING EFFORT MATH MATHEMATICS MICRO-INSURANCE MICROFINANCE MICROFINANCE INSTITUTION MICROFINANCE INSTITUTIONS MICROFINANCE LOANS MICROINSURANCE MONETARY FUND MORAL HAZARD MORTGAGE MORTGAGE CHOICE OPERATING COSTS PAYOUT RATIO PAYOUT RATIOS PENETRATION RATE PENSION POLITICAL ECONOMY PORTFOLIO PRICE INDICES PRICE INSURANCE PRICE SENSITIVITY PRIVATE SECTOR DEVELOPMENT PROBABILITIES PROBABILITY PROFITABILITY PROSPERITY PURCHASES RATE OF RETURN REMITTANCES REPAYMENT REPAYMENTS REPUTATION RESEARCH ASSISTANCE RESERVE BANK RESOURCE ALLOCATION RETIREMENT RETIREMENT SECURITY RETURNS RISK AVERSION RISK DIVERSIFICATION RISK EXPOSURE RISK MANAGEMENT RISK POOLING RISK SHARING RURAL FINANCE SAFETY SALES SAVINGS SAVINGS ACCOUNT SAVINGS DEPOSITS SECONDARY SCHOOL SERIAL NUMBER SKILLED WORKERS SMART MONEY SOCIAL COLLATERAL SOURCES OF INCOME STOCK MARKET SUPPLIERS TAKE-UP RATE TAKE-UP RATES TECHNICAL SUPPORT TECHNOLOGICAL ADVANCES TRACK RECORD TRANSACTIONS COSTS TRANSITORY INCOME VALUABLE VALUE OF SAVINGS VILLAGE VILLAGES VOLATILITY WELFARE BENEFITS WORTH
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101213144507 http://hdl.handle.net/10986/3987

Description
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.

Barriers to Household Risk Management : Evidence from India

Similar Items