Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2012-12-18 Revision-Date: 2014-01-23 Number: 12-145/V Author-Name: Wendy Janssens Author-Workplace-Name: VU University Amsterdam Author-Name: Berber Kramer Author-Workplace-Name: VU University Amsterdam Title: The Social Dilemma of Microinsurance: A Framed Field Experiment on Free-Riding and Coordination Abstract: 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. Classification-JEL: D71, I13, G21 Keywords: Health insurance, microfinance, risk-sharing, public goods experiment File-Url: https://papers.tinbergen.nl/12145.pdf File-Format: application/pdf File-Size: 606952 bytes Handle: RePEc:tin:wpaper:20120145