The social dilemma of microinsurance: Free-riding in a framed field experiment

Wendy Janssens and Berber Kramer

Journal of Economic Behavior & Organization, 2016, vol. 131, issue PB, 47-61

Abstract: Health shocks are among the most important unprotected risks for microfinance clients, but take-up of micro health insurance remains low. A framed field experiment with credit groups in Tanzania, eliciting demand for group versus individual insurance, attributes this to a social dilemma. In a context of joint liability, insurance is a public good because clients can rely on contributions from group members to cope with health shocks. We hypothesize that clients have a private incentive to free-ride and forgo individual insurance even when full enrollment optimizes group welfare. The binding nature of group insurance eliminates such free-riding. Our experiment yields substantial support for this hypothesis. Whereas the demand for group insurance is high, a substantial share of clients forgoes individual insurance and relies on peers to repay their loan when falling ill. Group insurance can potentially increase low take-up rates.

Keywords: Health insurance; Microfinance; Risk-sharing; Public goods experiment (search for similar items in EconPapers)
JEL-codes: D71 G21 I13 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:131:y:2016:i:pb:p:47-61

DOI: 10.1016/j.jebo.2016.03.003

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