Paying in pieces: A natural experiment on demand for life insurance under different payment schemes

Jonathan Bauchet, Jonathan Morduch

Research output: Contribution to journalArticle

Abstract

Risk is pervasive in low-income economies, but insurance markets tend to be under-developed and demand for existing products is often low and poorly understood. Usually, customers must buy insurance by making a single lump-sum payment. We study a popular life insurance product sold by Mexico's leading microfinance institution. We exploit a large-scale natural experiment involving 200,000 poor female microcredit customers and show that demand increased by 59–74 percent when customers were allowed to pay in weekly installments instead of in a lump sum, even though doing so was more costly for them. The finding is not explained by price or income, which do not change. We describe the possible roles of liquidity constraints and other explanations, and relate the result to discussions of demand for microinsurance and other products, including merit goods, in similar contexts.

Original languageEnglish (US)
Pages (from-to)69-77
Number of pages9
JournalJournal of Development Economics
Volume139
DOIs
StatePublished - Jun 1 2019

Fingerprint

life insurance
customer
insurance
demand
experiment
lump sum payment
income
microfinance
liquidity
low income
Mexico
market
economy
product
Life insurance
Natural experiment
Payment

Keywords

  • Discount rates
  • Liquidity constraints
  • Merit goods
  • Mexico
  • Present bias
  • Saving constraints

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

Cite this

Paying in pieces : A natural experiment on demand for life insurance under different payment schemes. / Bauchet, Jonathan; Morduch, Jonathan.

In: Journal of Development Economics, Vol. 139, 01.06.2019, p. 69-77.

Research output: Contribution to journalArticle

@article{fb8789c503a54d3ab7d82f041ec58cf8,
title = "Paying in pieces: A natural experiment on demand for life insurance under different payment schemes",
abstract = "Risk is pervasive in low-income economies, but insurance markets tend to be under-developed and demand for existing products is often low and poorly understood. Usually, customers must buy insurance by making a single lump-sum payment. We study a popular life insurance product sold by Mexico's leading microfinance institution. We exploit a large-scale natural experiment involving 200,000 poor female microcredit customers and show that demand increased by 59–74 percent when customers were allowed to pay in weekly installments instead of in a lump sum, even though doing so was more costly for them. The finding is not explained by price or income, which do not change. We describe the possible roles of liquidity constraints and other explanations, and relate the result to discussions of demand for microinsurance and other products, including merit goods, in similar contexts.",
keywords = "Discount rates, Liquidity constraints, Merit goods, Mexico, Present bias, Saving constraints",
author = "Jonathan Bauchet and Jonathan Morduch",
year = "2019",
month = "6",
day = "1",
doi = "10.1016/j.jdeveco.2019.02.002",
language = "English (US)",
volume = "139",
pages = "69--77",
journal = "Journal of Development of Economics",
issn = "0304-3878",
publisher = "Elsevier",

}

TY - JOUR

T1 - Paying in pieces

T2 - A natural experiment on demand for life insurance under different payment schemes

AU - Bauchet, Jonathan

AU - Morduch, Jonathan

PY - 2019/6/1

Y1 - 2019/6/1

N2 - Risk is pervasive in low-income economies, but insurance markets tend to be under-developed and demand for existing products is often low and poorly understood. Usually, customers must buy insurance by making a single lump-sum payment. We study a popular life insurance product sold by Mexico's leading microfinance institution. We exploit a large-scale natural experiment involving 200,000 poor female microcredit customers and show that demand increased by 59–74 percent when customers were allowed to pay in weekly installments instead of in a lump sum, even though doing so was more costly for them. The finding is not explained by price or income, which do not change. We describe the possible roles of liquidity constraints and other explanations, and relate the result to discussions of demand for microinsurance and other products, including merit goods, in similar contexts.

AB - Risk is pervasive in low-income economies, but insurance markets tend to be under-developed and demand for existing products is often low and poorly understood. Usually, customers must buy insurance by making a single lump-sum payment. We study a popular life insurance product sold by Mexico's leading microfinance institution. We exploit a large-scale natural experiment involving 200,000 poor female microcredit customers and show that demand increased by 59–74 percent when customers were allowed to pay in weekly installments instead of in a lump sum, even though doing so was more costly for them. The finding is not explained by price or income, which do not change. We describe the possible roles of liquidity constraints and other explanations, and relate the result to discussions of demand for microinsurance and other products, including merit goods, in similar contexts.

KW - Discount rates

KW - Liquidity constraints

KW - Merit goods

KW - Mexico

KW - Present bias

KW - Saving constraints

UR - http://www.scopus.com/inward/record.url?scp=85062694404&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85062694404&partnerID=8YFLogxK

U2 - 10.1016/j.jdeveco.2019.02.002

DO - 10.1016/j.jdeveco.2019.02.002

M3 - Article

AN - SCOPUS:85062694404

VL - 139

SP - 69

EP - 77

JO - Journal of Development of Economics

JF - Journal of Development of Economics

SN - 0304-3878

ER -