How effectively do households insure food consumption and assets against funeral expenses? The case of urban Zimbabwe
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How effectively do households insure food consumption and assets against funeral expenses? The case of urban Zimbabwe 1
Gift Dafuleya
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Fiona Tregenna2
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Received: 26 June 2019 / Accepted: 11 August 2020 © The Author(s) 2020; This article is published with open access
Abstract In response to funeral expenses, which drastically affect household consumption, many families in developing countries enter into formal and/or informal funeral insurance arrangements. Using new household survey data collected in the city of Bulawayo, Zimbabwe, we investigate the effectiveness of these arrangements in insuring food consumption and household non-financial assets against funeral expenses. We find that informal funeral insurance, especially when combined with formal insurance, effectively insures household assets from funeral shocks. Households that own more than one item of the same asset prefer to sell assets rather than destabilise food consumption, in the event that funeral insurance is inadequate or not available. Households without multiple of the same asset prefer to retain their assets and destabilise food consumption. We also show that the funeral insurance of households in Bulawayo partially insures food consumption. Our findings suggest that households have a hierarchy of preferred coping strategies when they are either uninsured or not fully insured against shocks. Keywords Informal insurance Formal insurance Funeral expenses Food consumption Household assets ●
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JEL codes D10 D14 D15 D52 ●
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* Gift Dafuleya [email protected] 1
University of Venda and Centre for Social Development in Africa, University of Johannesburg, Johannesburg, South Africa
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DST/NRF South African Research Chair in Industrial Development (SARChI), College of Business and Economics, University of Johannesburg, Johannesburg, South Africa
G. Dafuleya, F. Tregenna
1 Introduction In response to funeral expenses, which can drastically affect household consumption, many families in developing countries enter into formal and informal funeral insurance arrangements. On the one hand, theoretical work has been devoted to understanding how informal insurance arrangements are made (for instance, Bold 2009), and how households share risk under conditions of imperfect information and weak enforceability (for instance, Ligon et al. 2002). On the other hand, several studies have provided empirical assessments of the functions of informal insurance arrangements and how they operate, especially at the group level; examples include Hall (1987), Roth (2001), Thomson and Posel (2002), Dercon et al. (2006), Case et al. (2013) and LeMay-Boucher (2009). Earlier empirical work by Cochrane (1991) piloted the analysis of the effectiveness of insuring consumption against general idiosyncratic shocks under complete markets. Gertler and Gruber (2002) assess the extent to which families are able to insure consumption against illness. In a related study, De Weerdt and Fafchamps (2011) examine the extent to which insurance in the form
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