New Economics Papers
on Microfinance
Issue of 2011‒01‒23
three papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Enrolment in Micro Life and Health Insurance: Evidences from Sri Lanka By Bendig, Mirko; Arun, Thankom
  2. Adverse selection, credit, and efficiency: the case of the missing market By Alberto Martin
  3. Heterogeneity and Risk Sharing in Village Economies By Pierre-André Chiappori; Krislert Samphantharak; Sam Schulhofer-Wohl; Robert M. Townsend

  1. By: Bendig, Mirko (German Institute for Global and Area Studies); Arun, Thankom (University of Central Lancashire)
    Abstract: Microinsurance is an emerging concept protecting households from the potentially catastrophic expenditures associated with family related shocks. Therefore, this paper presents evidence on the determinants of insurance participation using probit models on household survey data from Sri Lanka, conditional on household's microfinance institution enrolment. Further, we employ multivariate probit regressions to analyse factors affecting the participation in different types of insurance. We find that the household’s experience of a family related shock is positively associated with the participation in micro health insurance schemes under study. There is strong evidence that microinsurance has not yet succeeded in proportionately reaching the most vulnerable households. Notably, education of the household head is a strong determinant of microinsurance participation.
    Keywords: microinsurance, household behaviour, Sri Lanka
    JEL: G22 O16 R22
    Date: 2011–01
  2. By: Alberto Martin
    Abstract: We analyze a standard environment of adverse selection in credit markets. In our environment, entrepreneurs who are privately informed about the quality of their projects need to borrow in order to invest. Conventional wisdom says that, in this class of economies, the competitive equilibrium is typically inefficient. We show that this conventional wisdom rests on one implicit assumption: entrepreneurs can only access monitored lending. If a new set of markets is added to provide entrepreneurs with additional funds, efficiency can be attained in equilibrium. An important characteristic of these additional markets is that lending in them must be unmonitored, in the sense that it does not condition total borrowing or investment by entrepreneurs. This makes it possible to attain efficiency by pooling all entrepreneurs in the new markets while separating them in the markets for monitored loans.
    Keywords: Adverse Selection, Credit Markets, Collateral, Monitored Lending, Screening
    JEL: D82 G20 D62
    Date: 2010–12
  3. By: Pierre-André Chiappori; Krislert Samphantharak; Sam Schulhofer-Wohl; Robert M. Townsend
    Abstract: We measure heterogeneity in risk aversion among households in Thai villages using a full risk-sharing model and complement the results with a measure based on optimal portfolio choice. Among households with relatives living in the same village, full insurance cannot be rejected, suggesting that relatives provide something close to a complete-markets consumption allocation. There is substantial heterogeneity in risk preferences estimated from the full-insurance model, positively correlated in most villages with portfolio-choice estimates. The heterogeneity matters for policy: Although the average household would benefit from eliminating village-level risk, less-risk-averse households who are paid to absorb that risk would be worse off.
    JEL: D12 D14 D53 D81 D91 G11 O16
    Date: 2011–01

This issue is ©2011 by Aastha Pudasainee and Olivier Dagnelie. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.