# 12-145/V (2012-12-18; 2014-01-23)

Wendy Janssens, VU University Amsterdam; Berber Kramer, VU University Amsterdam
Health insurance, microfinance, risk-sharing, public goods experiment
JEL codes:
D71, I13, G21

Health shocks are among the most important unprotected risks for microfinance clients, but the take-up of micro health insurance typically remains limited. This paper attributes low enrolment rates to a social dilemma. Our theory is that in jointly liable groups, insurance is a public good. Clients can rely on contributions from group members to cope with shocks. Less risk averse clients have a private incentive to free-ride and forgo individual insurance even when insurance optimises group welfare. The binding nature of group insurance eliminates such free-riding. A framed public goods experiment with microcredit groups in Tanzania, eliciting demand for group versus individual microinsurance, yields substantial support for this hypothesis. This provides a potential explanation for low take-up rates.