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Formal insurance for the informally insured: Experimental evidence from Kenya

Kelsey Hample ()

World Development Perspectives, 2021, vol. 22, issue C

Abstract: Creating markets for formal insurance is a popular proposal to improve welfare among subsistence farmers in the developing world, but rates of adoption have been low. I hypothesized that this empirical puzzle may be caused by the substitution of informal sharing which crowds out formal insurance. I created an experiment in which individuals made private decisions but could also interact within a small group. In one risk-smoothing treatment, I introduced an option to informally transfer investment yields within a group. In the other risk-smoothing treatment, I also added an option to play a new game, which amounted to purchasing formal insurance. Using this experimental design among Kenyan adults, I found that formal insurance reduced the amount of informal group sharing and increases in past informal group sharing reduced the adoption of formal insurance. Thus, policies to increase formal insurance adoption must account for consumer substitution between both formal insurance and informal sharing.

Keywords: Laboratory; Agricultural insurance; Insurance adoption; Informal insurance; Social networks (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.wdp.2021.100300

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