Pawning for Financing Health Expenditures: Do Health Shocks Increase the Probability of Losing the Pledge?

Evidence from developed countries shows debt and bankruptcy to be correlated with medical expenditures. In Mexico, the formal financial sector does not lend for health needs. So, the solution is often found by borrowing from relatives, friends, and moneylenders, or pawning belongings after using savings, if any. Despite the recent and growing literature on income and health, and health financing, we have not come across a single study analyzing pawning and health. Our study fills this gap using a sample of 400 government owned pawnshop users from Puebla, Mexico. The findings from the study revealed that health expenditures are a significant reason for pawning and having medical insurance does not reduce the probability to pawn. Also, catastrophic health expenditures are correlated with a higher probability of not redeeming the pledge. We found that most pawnshop users have low income and losing a pledge is positively correlated with low or middle income and the number of people in the household.