03-05-2012, 12:26 PM
Designing Shock Protection for Vulnerable Households:A How-to Guide
Zinman_Microfinance and Microinsurance Protecting Against Shocks-1.ppt (Size: 70.5 KB / Downloads: 27)
Why Worry About Shocks
Temporary setbacks should be smoothed
Long-run prospects unaffected
Smoothing = getting households, businesses, “back on their feet”
Failure/inability to smooth is inefficient:
Utility is concave in consumption: a little consumption means a lot (of marginal utility)
Starving is very “costly”
Don’t want viable businesses to fail
Irreversible investment problem; high continuation value
Discourages risk-taking
Stock options example
“Safety net” for permanent shocks
Why Should WeWorry About Shocks?
Some reason (arguably ample reason) to believe that microfinance and microinsurance markets don’t function well
Information asymmetries
Consumer biases
Undersaving…. Underinsuring?
Overborrowing on sunny days
Inadequate safety net
Especially in LDCs
Incomplete formal markets » perverse consequences? (crowd-out informal)
Theory also shows that when markets are missing, shocks can have disastrous consequences
Poverty traps
Debt traps
What works?
More research needed….”
Scientific standard appropriate given level of resources committed to development projects
Randomized-control trials= gold standard
Research adds value, saves donor money in medium-haul
Smoothing and Targeting
Thinking about specific motivations for intervention (Questions 1-2) raises another key question:
Whom should we target?
Why has consumer credit been the bastard stepchild of microcredit?