nep-mfd New Economics Papers
on Microfinance
Issue of 2018‒05‒21
two papers chosen by
Olivier Dagnelie
Université de Caen

  1. Social capital as a coping mechanism for seasonal deprivation: The case of the Monga in Bangladesh By Bakshi, Rejaul; Mallick, Debdulal; Ulubaşoğlu, Mehmet
  2. Could “Tontines” Expand the Market for Longevity Insurance? By Gal Wettstein

  1. By: Bakshi, Rejaul; Mallick, Debdulal; Ulubaşoğlu, Mehmet
    Abstract: The extreme hunger and deprivation that recurs every year in the lean season in northern Bangladesh, locally known as the Monga, is mainly due to the malfunctioning local labor and credit markets. Using data covering 5,600 extreme poor households in the Monga-prone region, we investigate in detail the role of social capital in securing employment and obtaining informal loans. Correcting for the endogeneity of social capital by the heteroscedasticity-based method proposed by Klein and Vella (2010) and also by the standard IV method for a robustness check, we document that social capital plays an important role in obtaining both wage- and self-employment. We also document a weak negative effect of social capital on obtaining informal loans. We explain our results in terms of the role of horizontal and vertical components of our measures of social capital in influencing different outcomes.
    Keywords: Monga, extreme seasonality, social capital, heteroscedasticity, employment, informal loan
    JEL: G21 I32 P46
    Date: 2017
  2. By: Gal Wettstein
    Abstract: A big challenge facing retirees is how to draw down their nest egg in retirement. The main consideration is insuring against “longevity risk” – the possibility of outliving one’s savings – without unduly restricting spending. One solution is to buy an annuity, which converts wealth into an income stream that is guaranteed until death. Common annuities include Social Security and traditional employer pensions. However, Social Security is not intended to be the sole source of retirement income and pensions in the private sector are rapidly disappearing, so buying an additional annuity with savings is often a good idea. Yet few people actually do. Many reasons exist for the lack of annuitization. These include the complexity of the product and the fear of giving up one’s wealth and then dying too soon to “break even.” A simpler reason is price, since annuity prices include a premium to protect the insurer selling the policy against longevity risk.1 Given the lack of interest in annuities, some policy experts have begun advocating an alternative form of longevity insurance – a “tontine” – which would require insurers to assume less risk and, in turn, charge lower premiums. Tontines, which do not currently exist in the marketplace, are the topic of this brief. The discussion proceeds as follows. The first section describes a basic tontine and how it differs from an annuity. The second section discusses the legal status of tontines. The third section explores the central tradeoff of a tontine: lower cost for less insurance. The fourth section describes a way to eliminate a potential downside of the payout pattern of tontines. The final section concludes that some of the enthusiasm for tontines is well placed but drawbacks also exist.
    Date: 2018–04

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