2. Discuss how informal insurance may interact with (be affected by...

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2. Discuss how informal insurance may interact with (be affected by or affect) the following household decisions:

(a) Savings
(b) Formal insurance
(c) Risk taking, for example the decision to invest in a high-return but riskier crop

3. Discuss three reasons why informal insurance among members of an extended family is more likely than insurance among groups of strangers.

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1. According to Flory (2005) increased use of formal savings in rural areas of Malawi sharply increases informal insurance during peak period of hunger. Moreover, formal savings complement local informal insurance for the highly vulnerable.

There are other aspects of the impact of savings on the informal insurance. Savings limits informal insurance. Chandrasekhar et al. (2010) found that savings provides technology by which people can smooth out risk that is not insured interpersonally. At the end, informal insurance may be crowded out, and may be concluded that savings have negative impact on informal insurance. Increased access to savings may destroy traditional informal insurance arrangements....

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