Essays in development economics

Gaps in financial access remain stark in the largest part of developing countries and have relevant consequences on poor households’ economic decisions, such as credit, saving and risk management. Lack of availability of formal financial services provided by either the market or public authorities (e.g in case of health insurance) have been compensated by the activity of informal groups, associations and arrangements. Old and new forms of community-based groups have been largely documented in most of developing countries and are shown to be active in several crucial economic domains. They have different levels of institutionalization as they can simply rely on social norms or can have rules and a certain degree of formalization concerning e.g. selection criteria, enforcement, sanctions. They all have in common the voluntary participation of people from the same community (village, neighbourhood, people of the same profession), the delivery of services to members, the non-profit character, the underpinning values of solidarity and mutual help. Some examples of community-based groups in Sub-Saharan Africa are analysed in this thesis: Rotating Saving and Credit Associations (roscas), funeral groups and mutual health organizations (MHOs). The importance of studying community-based arrangements lies in the premise that interventions at the level of a local community can deliver more effective and equitable development. Moreover, examining the mechanics of the informal market is very important for two reasons. First, the strength of the informal market is important for measuring and predicting how effective specific formal sector interventions could be, in the perspective of scaling-up. Second, lessons learned in the informal markets can help shape policy in the formal (Karlan and Morduch 2009). In chapter 1, drawing on data from a household survey in urban Benin1, we examine membership in two types of informal groups that display the characteristics of a commitment device: rotating savings and credit associations (roscas) and funeral groups. We investigate whether agents displaying time-inconsistent preferences are sophisticated enough to commit themselves through taking part in such groups. We provide evidence indicating that women who are hyperbolic are more likely to join these groups and to save more through them, but men displaying similar preferences appear naïve with regards membership. Moreover, we find that hyperbolic agents, irrespective of their gender, tend to restrain consumption of frivolous goods to a larger extent. Furthermore, weak evidence is provided that microcredit can be used as a device to foster self-discipline. We also ensure that our results cannot be explained by intrahousehold conflict issues. The second chapter largely draws on Bonan J, Dagnelie O., LeMay-Boucher P. and Tenikue M. (2012) “Is it all about Money? A Randomized Evaluation of the Impact of Insurance Literacy and Marketing Treatments on the Demand for Health Microinsurance in Senegal”, Working Papers 216, University of Milano-Bicocca, Department of Economics. It is based on a field work we carried out in Spring-Summer 2010 in Thies, Senegal, which I coordinated and supervised. The chapter presents experimental evidence on mutual health organizations (MHOs) in the area of Thiès, Senegal. Despite their benefits, in some areas there remain low take-up rates. We offer an insurance literacy module, communicating the benefits from health microinsurance and the functioning of MHOs, to a randomly selected sample of households. The effects of this training, and three cross-cutting marketing treatments, are evaluated using a randomized control trial. We find that our various marketing treatments have a positive and significant effect on health insurance adoption, increasing take-up by around 35%. Comparatively the insurance literacy module has a negligible impact on the take up decisions. We attempt at providing different contextual reasons for this result. The third chapter is an extension of the second and draws on the same dataset. We measure the willingness to pay (WTP) for MHOs premiums in a Senegalese urban context. WTP valuations can help both policy makers and existent MHOs in better understanding the characteristics of the demand of microinsurance products. This chapter considers the role of individual and household socio-economic determinants of willingness to pay for a health microinsurance product and add to the previous literature evidence of the role of income, wealth and risk preferences on individual WTP. We find that richer, more wealthy and more risk-averse head of households are more likely to reveal a higher WTP for health microinsurance. Conscious of the potential limits of our elicitation strategy (bidding game), we incorporate the existent literature on the effects of ‘preferences anomalies’ (Watson and Ryan 2007) and estimate WTP accounting for structural shift in preferences (Alberini et al. 1997), anchoring effect (Herriges and Shogren 1996) and the two effects together (Whitehead 2002). We find evidence of slight underestimation of the median WTP if preferences anomalies are not taken into consideration. However, the extent of such difference is far from being relevant. Previous results on the determinants of WTP are robust to the effect of such preference anomalies. We also provide an analysis of the predictive power of WTP on the actual take-up of insurance following our offering of membership to a sample of 360 households. WTP appears to have a positive and significant impact on actual take-up.