Limited Insurance Within the Household in Kenya
Individuals in developing countries are often subject to considerable financial risk, but most lack access to formal financial services that would allow them to insure themselves against unexpected income shocks like medical expenses or natural disasters. Instead, households often use informal systems of gifts and loans from friends or family to cope with large unplanned expenses. While these informal networks do provide some protection against shocks, they can also face problems of information asymmetry and payment enforcement. Many individuals may therefore attempt to cope with risk within the household where information sharing and enforcement are presumably easier. Whether intra-household insurance mechanisms are effective in insuring against risk remains, however, an important question. If members of a household do not insure each other against risk, then programs which impact the ability of individuals to cope with risk (such as formal savings accounts or microinsurance programs) could substantially increase people’s welfare.
Robinson, Jonathan. 2012. "Limited Insurance Within the Household: Evidence from a Field Experiment in Kenya." American Economic Journal: Applied Economics 4(4): 140-164.