Journal Article

Between the State and the Market: Can Informal Insurance Patch the Safety Net?

Jonathan Morduch

in The World Bank Research Observer

Published on behalf of World Bank

Volume 14, issue 2, pages 187-207
Published in print August 1999 | ISSN: 0257-3032
Published online August 1999 | e-ISSN: 1564-6971 | DOI: http://dx.doi.org/10.1093/wbro/14.2.187
Between the State and the Market: Can Informal Insurance Patch the Safety Net?

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Most households in low-income countries deal with economic hardships through informal insurance arrangements between individuals and communities rather than through publicly managed programs or market-provided insurance schemes. Households may, for example, draw on savings, sell physical assets, rely on reciprocal gift exchanges, or diversify into alternative income-generating activities. These mechanisms can be highly effective in the right circumstances, but most recent studies show that informal insurance arrangements are often weak. Poor households, in particular, have substantial difficulties coping with even local, idiosyncratic risks. Public policy can help reduce vulnerability by encouraging private, flexible coping mechanisms while discouraging those that are fragile or that hinder economic and social mobility. Promising policies include creating self-regulating workfare programs and providing a supportive setting for institutions working to improve access to credit, crop and health insurance, and safe and convenient saving opportunities.

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Subjects: Development Planning and Policy

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