Short-term Precaution, Insurance, and Saving Mechanisms in Rural Vietnam

Abstract

This study investigates the impacts of short-term precautionary selection and insurance on household decisions regarding the participation in different kinds of saving mechanisms in rural Vietnam. The two-part model is employed for the analysis and unlike other studies I investigate household decisions regarding both, participation and contribution to formal and informal saving intermediaries. Furthermore we control for the endogeneity of the short-term precautionary motive and of insurance in the model of household contribution. The finding suggests that the short-term precautionary motive reduces the household probability to engage into formal and informal saving intermediaries. In addition, insurance is found to be a substitute for short-term precautionary savings. Concerning the contribution aspect, the short-term precautionary motive is found to reduce the participant's deposits in formal saving intermediaries while there is no evidence for insurance in influencing household contribution to saving intermediaries.