Risk, Insurance, and Household Behavior
Evaluate how risk and lack of insurance shape household economic decisions in developing countries.
Poor households face significant risk—crop failure, illness, unemployment—without formal insurance. This leads to risk-averse behavior: avoiding productive but risky investments, maintaining low-productivity safety nets, keeping limited savings in cash. Understanding household risk exposure is essential for development policy. Insurance-like programs (index insurance tied to rainfall, for example) can enable riskier investments. But designing insurance for poor populations is complex—moral hazard, adverse selection, and the need for scale all matter. The goal is understanding which risks are most constraining and what institutional innovations can address them.
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