Insurance Innovations for the Poor
Final Report Abstract
The main goal of the project “Insurance Innovations for the Poor” was to fill the evidence gap regarding efficient insurance solutions in low-income markets. Information asymmetries, such as moral hazard and adverse selection, are a major challenge in this setting, and I worked on how to overcome these and other problems in several work packages. One package analyzed solutions to adverse selection in health insurance markets. Exploiting a large-scale randomized control trial (RCT) in Pakistan and state-of-the-art identification methods, we show that hospitalization insurance schemes for individuals suffer from adverse selection. When bundling insurance policies at the household or group level, however, adverse selection is mitigated. Another work package focused on solutions to moral hazard. We provide a theoretical intuition on how pro-social preferences in a joint liability group contract can ensure incentivecompatibility. Two independent large-scale behavioral experiments indeed suggest that even if peer pressure is absent, group policies can improve efficiency when agents are pro-social. Another line of work investigated social impacts of insurance for low-income households. One paper exploits a RCT to analyze the effects of extended health insurance on child labor for poor families in Pakistan. We develop an economic model to highlight that insurance can lead to a reduction of child labor even in the absence of a shock. We then exploit data on observed shocks and find evidence for such an ex-ante effect, driving part of the observed reduction in child labor. Another paper evaluates a large government-led health insurance provision in Pakistan. Even though there seem to be no significant effects on overall health care consumption, we find evidence for a shift from public to private facilities, which are associated with a higher quality of care. A third paper investigates the effects of insurance on informal risk-sharing. This work suggests crowding-out effects, but that only strategic and not necessarily intrinsic motives for risk-sharing are displaced. Furthermore, I analyzed decisions and preferences under uncertainty. One paper points to the important role of uncertainty about the reliability of insurers. We show that introducing the risk of not paying claims and uncertainty about the probability each leads to substantial reductions in insurance demand. An analysis of the belief and decision dynamics suggests that the problem is not easily resolved over time. Another paper suggests a short-term shift towards “rationality” after people experience a severe natural disaster. In particular, people exhibit significantly higher internal locus of control, lower reciprocity, and lower risk-aversion. A third paper more fundamentally analyses psychological decision processes under risk. It shows how utility models (partially) overlap with decision heuristics and that simple heuristics are used more with low numeracy, by a general compared to a student population, and in a developing relative to a developed country context. Even though some adjustments of the research plan followed from the partial funding decision, the fellowship constituted a key step in my academic career. The freedom to work independently under excellent academic conditions not only allowed critical investments in older projects, but also facilitated developing new promising streams of research. Overall, my research shows that there are real challenges in low-income insurance markets, but that there are positive impacts and solutions as well. My work also highlights critical aspects, such as ensuring transparent and reliable insurance contracts. It further suggests that health insurance reforms might have reallocation effects from public to private providers, which deserve further attention. Also, more work is needed to understand decision-making processes under risk and to eventually bridge the gap between different approaches in Psychology and Economics.
Publications
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2017. “Contract Nonperformance and Ambiguity in Insurance Markets.” St. Gallen Finance Research Paper 2017/1
Biener, Christian, Andreas Landmann, and Maria Isabel Santana
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2018. “Adverse Selection in Low-Income Health Insurance Markets: Evidence from a RCT in Pakistan.” IZA Discussion Paper 11751
Fischer, Torben, Markus Frölich, and Andreas Landmann
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2018. “Can Group Incentives Alleviate Moral Hazard? The Role of pro-Social Preferences.” European Economic Review 101: 230–49
Biener, Christian, Martin Eling, Andreas Landmann, and Shailee Pradhan
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2018. “Effects of Insurance on Child Labour: Ex-Ante and Ex-Post Behavioural Changes.” Journal of Development Studies 54 (6): 1002–18
Frölich, Markus, and Andreas Landmann
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2018. “Patrilocal Residence and Female Labor Supply: Evidence From Kyrgyzstan.” Demography 55: 2181–2203
Landmann, Andreas, Helke Seitz, and Susan Steiner
