Bundling Health Insurance and Microfinance in India: There Cannot Be Adverse Selection If There Is No Demand

Abhijit Banerjee, Esther Duflo and Richard Hornbeck

American Economic Review, 2014, vol. 104, issue 5, 291-97

Abstract: Microfinance institutions have started to bundle their basic loans with other financial services, such as health insurance. Using a randomized control trial in Karnataka, India, we evaluate the impact on loan renewal from mandating the purchase of actuarially-fair health insurance covering hospitalization and maternity expenses. Bundling loans with insurance led to a 16 percentage points (23 percent) increase in drop-out from microfinance, as many clients preferred to give up microfinance than pay higher interest rates and receive insurance. In a Pyrrhic victory, the total absence of demand for health insurance led to there being no adverse selection in insurance enrollment.

JEL-codes: D82 G21 G22 I13 O15 O16 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.5.291
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Citations: View citations in EconPapers (41)

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