Lecture 12: Informal Risk Sharing: Barriers to Full Insurance with Abhijit Banerjee

We examine financial markets in the context of development economics. We first discuss the empirical implications of simple models of the efficient allocation of risk, and the consequences of information, enforcement, and behavioural frictions for informal risk sharing, welfare, and production decisions. We cover the design, demand for, and impact of formal insurance. The role of savings in a risky environment is discussed next, and we consider both external and behavioural barriers to saving. The module concludes with discussions of microfinance, mobile money and digital finance, and insurance.