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The introduction of formal insurance and its effect on redistribution

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  • Anderberg, Dan
  • Morsink, Karlijn

Abstract

Transfers motivated by altruism, guilt, and norms of giving play an important role in supporting individuals who suffer losses due to risk. We present empirical evidence from an artefactual field experiment in Ethiopia in which we introduce formal insurance in a setting where donors make redistributive transfers to recipients who experience losses. We find that donors tend to reduce their transfers to recipients who are offered insurance, whether or not they take it up. When insurance is rejected by a recipient, transfer reductions are larger for donors who firmly expect that the recipient would take up insurance. The results are consistent with a framework in which the introduction of insurance erodes norms of giving by revealing differences in the extent to which individuals value precautionary behavior with respect to risk-taking. Welfare calculations show that when formal insurance is introduced, the welfare of those who fail to take it up may be reduced.

Suggested Citation

  • Anderberg, Dan & Morsink, Karlijn, 2020. "The introduction of formal insurance and its effect on redistribution," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 22-45.
    • Handle: RePEc:eee:jeborg:v:179:y:2020:i:c:p:22-45
    DOI: 10.1016/j.jebo.2020.08.005
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    Cited by:

    1. Berg, Erlend & Blake, Michael & Morsink, Karlijn, 2022. "Risk sharing and the demand for insurance: Theory and experimental evidence from Ethiopia," Journal of Economic Behavior & Organization, Elsevier, vol. 195(C), pages 236-256.
    2. Renate Strobl & Conny Wunsch, 2021. "Risky choices and solidarity: disentangling different behavioural channels," Experimental Economics, Springer;Economic Science Association, vol. 24(4), pages 1185-1214, December.
    3. Will, Meike & Groeneveld, Jürgen & Lenel, Friederike & Frank, Karin & Müller, Birgit, 2023. "Determinants of Household Vulnerability in Networks with Formal Insurance and Informal Risk-Sharing," Ecological Economics, Elsevier, vol. 212(C).
    4. Vorlaufer, Tobias & Steimanis, Ivo, 2023. "Solidarity under heterogenous adaptation costs: Experimental evidence on coping after climate hazards," Journal of Environmental Economics and Management, Elsevier, vol. 120(C).
    5. Meike Will & Jürgen Groeneveld & Karin Frank & Birgit Müller, 2021. "Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model," PLOS ONE, Public Library of Science, vol. 16(3), pages 1-18, March.

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    More about this item

    Keywords

    Formal insurance; Transfers; Norms of giving; Guilt;
    All these keywords.

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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