Bundling Health Insurance and Microfinance in India: There Cannot Be Adverse Selection If There Is No Demand
- (pp. 291-97)
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.Citation
Banerjee, Abhijit, Esther Duflo, and Richard Hornbeck. 2014. "Bundling Health Insurance and Microfinance in India: There Cannot Be Adverse Selection If There Is No Demand." American Economic Review, 104 (5): 291-97. DOI: 10.1257/aer.104.5.291Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G22 Insurance; Insurance Companies; Actuarial Studies
- I13 Health Insurance, Public and Private
- O15 Economic Development: Human Resources; Human Development; Income Distribution; Migration
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance