Risk, Insurance and the Family

National Bureau Of Economic Research, Cambridge MA

Investigators

Linked publications & trials

Abstract

DESCRIPTION (provided by applicant): This project seeks to improve the welfare and well-being of families in developing countries through the provision of targeted financial products and services. In the face of risk and hardship, poor and lower middle class families often lack the tools to weather hard times and plan for their future. For these families, events such as drought, illness, or the disability or death of a family member result in undue suffering and economic losses. In the absence of financial intermediation, families may not be able to educate their children or invest in productive assets. This project thus seeks to alter the financial landscape o Thailand by giving households improved tools for decision making, information about available products and services, appropriate training, and access to innovative savings, credit, and insurance instruments; it also gives financial institutions better information on local environments and household needs for investing, lending, and insurance. This project makes use of randomized evaluations and systematic research that blends data and theory. Though Thailand is chosen as a prototype, this project provides a roadmap for other developing countries going forward. A ground-up approach with four distinct components provides a framework for evaluating the financial system as a whole: (1) introducing and evaluating a lifecycle wealth planner for families in a developing country to better understand the demand side of the market, including households' financial needs, capabilities, and limitations; (2) understanding the supply side of the market by assessing barriers and other obstacles that limit financial access and implementing a randomized evaluation of a financial product innovation in partnership with financial institutions in Thailand; (3) implementing a national-level innovation that brings together geographically and informationally dispersed sides of potential markets (e.g., lenders and borrowers), matches them in an efficient way, and allows funds to circulate easily and flexibly; and (4) improving economic general equilibrium models to determine the overall distribution of welfare gains and impact of policy changes. This work leverages existing panel data and will complete a 20 year panel of rural and urban households across distinct regions of Thailand. Approximately 1,100 new survey households are added to assess the impact of the project's two main interventions: a financial planning tool and financial product innovations. Never before have these kinds of interventions been run on top of such rich panel of data; the project is thus uniquely able to provide an extensive look at the financial strategies of households and the impact that financial tools can have in moving households in the direction of their goals. Through these interventions, partnerships with financial institutions on the ground and systemic research informed via the use of detailed economic models, this project aims to create a more efficient financial system that supports the growth and development of individuals, communities, regions, and the country as a whole.