Regulation

This paper estimates the role of information in insurance take-up using data from a randomized experiment in rural China where information was either offered directly through financial education or accessed indirectly through social networks. Unlike previous studies, the experimental design allows to not only identify the causal effect of social networks, but also to differentiate the various channels through which they operate, including improvement of negotiating power, imitation, and social learning of insurance benefits. The results show that social networks have a large and significant effect on insurance take-up decisions mainly driven by the social learning of insurance benefits. The policy implication is that offering financial education to a subset of households in a village community selected for their strong friendship links with others, their recognized farming skills, and leadership roles, and relying on social networks to extend its effect on more farmers through social learning, is an effective way of improving insurance take-up.

This paper reports the results of behavioral economic experiments conducted in Peru to examine the relationship amongst risk preferences, loan take-up, and insurance purchase decisions. This area-based yield insurance can help reduce people's vulnerability to large scale covariate shocks, and can also lower the loan default probability under extreme negative covariate shocks. In a context of collateralized formal credit markets, researchers provide suggestive evidence that insurance may help reduce the fear of losing collateral that prevents potential borrowers from taking loans. Framing these experiments to recreate a real life situation, the authors started with a Baseline Game where subjects had to choose between a fallback production project and an uninsured loan. The authors then introduced a third project choice--loan with yield insurance (Insurance Game)--which allows them to measure the effect of introducing insurance on the demand for loans. Overall, more than 50 percent of the subjects are willing to buy insurance in this insurance game. Further, controling for the number of peers in the ag network, wealth, and choices made in the baseline game, the study finds that the project choice decision is predicted by a judgment bias known as hot-hand effect, and risk aversion. In the latter case, the shape of the relationship is quadratic, meaning that highly risk averse subjects will prefer switching to the risky, uninsured loan project, while those showing a low and moderate risk aversion will stick to the safer (fallback or insured loan) projects.

This article presents the results from an experimental evaluation of a voluntary health insurance program for informal sector workers in Nicaragua. Costs of the premiums as well as enrollment location were randomly allocated. Overall, take-up of the program was low, with only 20% enrollment. Program costs and streamlined bureaucratic procedures were important determinants of enrollment. Participation of local microfinance institutions had a slight negative effect on enrollment. One year later, those who received insurance substituted toward services at covered facilities and total out-of-pocket expenditures fell. However, total expenditures fell by less than the insurance premiums. The authors find no evidence of an increase in health-care utilization among the newly insured. They also find very low retention rates after the expiration of the subsidy, with less than 10% of enrollees still enrolled after one year. To shed light on the findings from the experimental results, the authors present qualitative evidence of institutional and contextual factors that limited the success of this program.