American Economic Review Vol. 104 No. 5 2014

Bundling Health Insurance and Microfinance in India: There Cannot be Adverse Selection if There Is No Demand

Abhijit Banerjee¹; Esther Duflo¹; Richard Hornbeck²

¹ Department of Economics, MIT, 77 Massachusetts Ave., Building E17, Cambridge, MA 02139 (e-mail: ) · ² Department of Economics, Littauer Center 232, Harvard University, Cambridge, MA 02138 (e-mail: )

Abstract

Microfinance institutions have started to bundle their basic loans with other financial services, such as health insurance. Using a randomized control trial in Karnataka, India, we evaluate the impact on loan renewal from mandating the purchase of actuarially-fair health insurance covering hospitalization and maternity expenses. Bundling loans with insurance led to a 16 percentage points (23 percent) increase in drop-out from microfinance, as many clients preferred to give up microfinance than pay higher interest rates and receive insurance. In a Pyrrhic victory, the total absence of demand for health insurance led to there being no adverse selection in insurance enrollment.

DOI

10.1257/aer.104.5.291

Volume

104

Issue

5

Pages

291-297

Language

en

Sources

bibtex:phds-export.bib openalex crossref

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