Background Risk of Food Insecurity and Insurance Behaviour: Evidence from the West Bank
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| Source | FOODSECURE working paper no. 3. The Hague: LEI Wageningen UR. October 2012 |
| Author(s) | Elisa Cavatorta; Luca Pieroni |
| Scheduled date | 2013-02-14 |
| Abstract | This paper explores behavioural changes resulting from the presence of a back-
ground risk. Due to markets incompleteness, not all risks are insurable. The lit-
erature suggests that, according to the structure of preferences, agents bearing a
background uninsurable risk are less willing to bear other insurable risks and in-
crease their demand for insurance. The empirical evidence of this effect is limited
and, despite the relevance of this question, unexplored in developing countries. This
paper fills this gap. It explores the effect of a background risk on the decision to buy
health insurance using household data from the Palestinian Territories. We consider
the risk of food insecurity as a background uninsurable risk. Using a bivariate pro-
bit model, we find that the propensity to buy health insurance is positively affected
by the presence of a background risk of food insecurity. When allowing the back-
ground risk to vary in intensity, we find that the propensity to insure is higher as
the background risk becomes more intense. These results are robust to alternative
indicators of background risk. The study shows that, in presence of background
risks, there might be incentive changes towards the desirability of insurance that
have implications for policy design. |
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| Keywords | Background Risk, Food Insecurity, Health Insurance, Bivari-
ate Probit |