Insurance

Question 1

What reason does Professor Banerjee cite for why the poor in developing countries may be more vulnerable to health shocks?

Answer 1

The absence of a social system the pays for health expenses. Many developing countries lack well-functioning social health insurance schemes, as a result of which, poor households have to cope with health shocks by paying out of pocket. This makes the poor in developing countries more vulnerable to the risks associated with health shocks.

Question 2

Which of the following might be ways in which the poor cope with risk?

Answer 2

• Borrowing
• Saving
• Minimizing risk taking
• Diversifying occupations

Question 3

One advantage with ROSCAs is the flexibility that they offer.

Answer 3

False. While ROSCAs have the benefit of being a simple, low-cost method of saving, they follow a set timeline along which members can get cash out of the group. They are thus quite inflexible, although ubiquitous in many parts of the world.

Question 4

In the two-period utility maximization problem below, c₁ is consumption today and c₂ is consumption tomorrow, with u (c_t) denoting the utility derived from consumption at time t. Income today, y₁ is known while income tomorrow, y₂ is uncertain. What does B represent?

Answer 4

The discount rate applied to consumption tomorrow. We would want to maximize utility across the two periods.