The Subjective Well-being Effects of Imperfect Insurance that Doesn’t Pay Out
2017
Hirfrfot, Kibrom | Barrett, Christopher B. | Lentz, Erin C. | Taddesse, Birhanu
In this paper we estimate the effects of an imperfect insurance coverage on subjective well-being of a poor, rural population, by exploring whether insurance in force improves subjective well-being and whether insurance that lapsed but did not pay out leads to ex post buyer’s remorse. Exploiting randomization of incentives to purchase a newly introduced index-based livestock insurance product, we establish that even a product that did not pay out generates significant gains in well-being, on average, and that the result is robust to a host of alternative estimation approaches. We also establish that those who purchase insurance that does not pay out experience buyer’s remorse, although the magnitude of this effect is considerably smaller than that of possessing insurance, so that even an agent who can reasonably anticipate subsequent buyer’s remorse in the event that no indemnity is triggered will find it rational to purchase the product.
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