The international economics major examines the effects of micro-insurance on the poor’s ability to smooth consumption.
Name: Katelyn Roache ’19
Major: International Economics
Minor: Finance
Faculty mentor: Steve DeLoach, professor of economics
Title of research: The Effects of Micro-Insurance on the Poor’s Ability to Smooth Consumption
Abstract:
The world’s poorest citizens often face unexpected risks, from natural disasters to unexpected illnesses. Without resources to rely on, these risks can have devastating results for those already living in poverty. This paper examines the following question: How does the presence of insurance allow the poor to guard themselves against unexpected risks?
In the face of an adverse shock, people often smooth their consumption using various techniques, such as drawing from their savings or selling off their assets. While other papers have examined consumption smoothing in the context of various micro financial services, such as micro savings and microcredit, this paper examines the impact of microinsurance.
To analyze how households respond to health shocks, this paper uses data from the 2007 and 2014 Indonesian Family Life Survey (IFLS), which contains data from individual households, alongside data from village leaders about their respective communities. I use this data to examine whether insurance impacts a household’s probability to save. Using multiple regression analysis with fixed effects, I find evidence that access to insurance during a health shock has a positive impact on a household’s probability of saving. It seems that insurance could have the ability to help the poor manage unexpected risks. Insurance could be a viable option for the world’s poorest population and increasing access to this financial resource could transform people’s quality of life.
In other words:
This paper looks at how the poor respond to health issues. Since the poor often do not have access to financial systems, they aren’t able to respond to health problems easily. This paper looks at how access to insurance could change the way people respond when they experience health issues. This paper specifically looks at Indonesia as a case study. I find that insurance has a small effect on the poor when they have a health complication.
Explanation of study/potential impact of findings:
If the poor have access to financial services, they may be better equipped to handle unforeseen events that could affect their income. This could have long-term impacts for those living in poverty, because they may be able to accumulate savings over time and help their families. I am looking at one type of financial service to examine its effectiveness in comparison to other types of financial services. Identifying the most effective financial service is important because it can demonstrate the most impactful way to contribute to the alleviation of poverty.
Why did you pick this topic?
During my freshman year, I had to read Muhammad Yunus’ book about microfinance called “Creating a World without Poverty” in my Principles of Economics class for my first assignment in college. This book sparked my interest in the topic of microfinance and now I am excited to finish my college career by conducting research in this field. I think microfinance is an idea that could help change the lives of many poor people around the world. I wanted to write a paper that examined the effectiveness of different types of microfinance and decided to focus on microinsurance since there wasn’t a lot of previous research on this service.
How has your mentor impacted your research process?
Dr. DeLoach was the professor that first introduced me to the topic of microfinance, and now he is helping me write my senior thesis. Throughout the process, he helped guide me in the right direction and made sure I was on track to meet deadlines. My mentor has also done his own research in this field, so I actually used one of his papers in my research.