Risk and development: an experimental study of insurance demand and risky decision making in rural Uganda

Perez-Viana, Borja (2018) Risk and development: an experimental study of insurance demand and risky decision making in rural Uganda. Doctoral thesis, University of East Anglia.

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Abstract

Uninsured risk leaves poor households in developing countries vulnerable to serious negative shocks hard to cope with, and forces them to engage in costly risk management strategies to hedge against their occurrence. Although mutual support networks have long existed, they are ill-suited to protect against covariate or catastrophic risks. Grounded in a strong rationale, insurance has however failed to fulfil its potential, plagued by serious informational and enforcement problems. Nevertheless, in recent years a new form of index-based insurance has arisen as a promising instrument to deliver formal coverage, overcoming the mentioned issues through its particular design. Yet index insurance is not without problems, its key limitation is the imperfect correlation between index and losses (i.e. basis risk), a problem that partially explains the low demand it has been met with. Some recent papers argue that informal risk sharing can complement the coverage of index insurance, by partially absorbing basis risk. However, the possibility that pre-existing risk-sharing arrangements hamper formal insurance uptake cannot be dismissed. To shed light on this relationship and the future of index insurance, the paper investigates how the provision of formal insurance interacts with pre-existing risk-sharing arrangements, employing experimental evidence from a rural area in eastern Uganda. We contribute by varying exogenously actual risk sharing-to study its effect on insurance demand-and insurance characteristics-to test whether this effect varies depending on the type of insurance. In addition, we investigate the influence that the provision of formal insurance exerts on risk sharing behaviour. We find that anticipated informal risk sharing crowds out demand for index insurance, but does not affect indemnity insurance uptake. This result is partly explained by the risk sharing behaviour observed.

Item Type: Thesis (Doctoral)
Faculty \ School: Faculty of Social Sciences > School of International Development
Depositing User: Users 11011 not found.
Date Deposited: 14 Nov 2019 11:41
Last Modified: 14 Nov 2019 11:41
URI: https://ueaeprints.uea.ac.uk/id/eprint/72964
DOI:

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