Informal Insurance and Moral Hazard: Gambling and Remittances in Thailand

Douglas Miller and Anna Paulson

No 1463, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: More than 35% of Thai households either give or receive remittances, and remittances account for about one-third of the income of the receiving households. Remittances may be an important source of protection against adverse events for the receiving household. This paper provides evidence that remittances behave in a way that is consistent with insurance: they are sensitive to shocks to regional rainfall and they respond to household level events. The paper goes on to examine whether there is evidence of moral hazard in the informal insurance contracts that link households who send and receive remittances. Specifically, we examine how the quality of insurance that is offered through remittances affects the probability and the amount of gambling done by households that either send or receive remittances. The evidence is consistent with moral hazard: households who remit are more likely to gamble and gamble more the higher the potential quality of insurance between the sending and the receiving province. Alternatively, the results can be interpreted to indicate that households who are more insured shift their portfolios toward riskier investments.

Date: 2000-08-01
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