The social dilemma of microinsurance: A framed field experiment on free-riding and coordination in microcredit groups

• Development Workshop

Date and Location

Monday, October 8, 2012, 4:10 PM - 5:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

This paper analyzes free-riding and coordination problems in microinsurance. We model demand for health insurance in microcredit groups that typically share risk through joint liability as a social dilemma. Less risk averse clients are tempted to free-ride and forgo individual insurance while the more risk averse face a coordination problem. Group insurance binds both types to the social optimum. Microinsurance games played with microcredit clients in Tanzania conrm the free-riding hypothesis and demonstrate limited coordination failures under individual insurance. Group insurance increases demand in the games. These findings provide a potential solution for low uptake of microinsurance.