 WHY IS THE TAKE‐UP OF MICROINSURANCE SO LOW? EVIDENCE FROM A HEALTH INSURANCE SCHEME IN INDIASeiro Ito and Hisaki Kono The Developing Economies, 2010, vol. 48, issue 1, 74-101 Abstract: Insurance for the poor, called microinsurance, has recently drawn the attention of practitioners in developing countries. There are common problems among the various schemes: (1) low take‐up rates, (2) high claim rates, and (3) low renewal rates. In the present paper, we investigate take‐up decisions using household data collected in Karnataka, India, focusing on prospect theory, hyperbolic preference, and adverse selection. Prospect theory presumes that people behave in a risk‐averse way when evaluating gains but in a risk‐loving way when evaluating losses. Because insurance covers losses, the risk‐loving attitude toward losses might explain the low take‐up rates, and we find weak empirical support for this. Households with hyperbolic preference were more likely to purchase insurance, consistent with our theoretical prediction of demand for commitment. We also find some evidence on the existence of adverse selection: households with a higher ratio of sick members were more likely to purchase insurance. Date: 2010 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:deveco:v:48:y:2010:i:1:p:74-101 Ordering information: This journal article can be ordered from Access Statistics for this article The Developing Economies is currently edited by Katsuji Nakagane More articles in The Developing Economies from Institute of Developing Economies Contact information at EDIRC. |
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