Offering Rainfall Insurance to Informal Insurance Groups: Evidence from a Field Experiment in Ethiopia

By Stefan Dercon, Ruth Vargas Hill, D. Clarke, I. Outes-Leon, A. Taffesse. 2012

249 citations recorded by the source corpus.

We show theoretically that the presence of basis risk in index insurance makes it a complement to informal risk sharing, implying that index insurance crowds-in risk sharing and leading to a prediction that demand will be higher among groups of individuals that can share risk. We report results from Ethiopia from a first attempt to market weather insurance to informal risk-sharing groups. The groups were offered training on risk management and insurance. We randomized the content of training provided to group leaders, with some sessions focusing on the benefits of informally sharing idiosyncratic basis risk. Consistent with learning informed by the theoretical results, we found that members of groups whose leaders had received training that emphasized risk-sharing had considerably higher uptake. We find that this effect can be explained either by a more careful selection of training participants by leaders or a direct impact of the treatment on insurance demand.

Subfields: Economics and Econometrics, Safety Research, Soil Science

View Paper: https://www.semanticscholar.org/paper/24c6ae5e44fffb3299fcc755cc724ad3ccbba5c0

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Citations in the corpus

Selling Formal Insurance to the Informally Insured (2012, background): “And recent papers have shown, using experimental evidence, that pre-existing informal networks play an important role in the demand for index-based weather insurance via the diffusion of information (Dercon et al., 2011; Cai, de Janvry and Sadoulet 2012).”
After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection (2013, unknown): “Other research has shown that barriers to the uptake of index insurance in similar contexts are often nonprice factors including trust and understanding of the contract, risk aversion, wealth and financial liquidity, and access to informal risk sharing networks, rather than heterogeneous willingness”
How Basis Risk and Spatiotemporal Adverse Selection Influence Demand for Index Insurance: Evidence from Northern Kenya (2014, background): “…risk pools that insure against idiosyncratic shocks, protecting the pool from large covariate shocks that could jeopardize the integrity of the informal risk pool while leaving the network members to protect each other against idiosyncratic shocks (Dercon et al. 2014; Mobarak & Rosenzweig 2012).”
Time versus State in Insurance: Experimental Evidence from Contract Farming in Kenya (2018, background): “…40 percent; but most find significantly lower rates, for example Ahmed, McIntosh, and Sarris ( 2017 ) ; Giné, Townsend, and Vickery ( 2008 ) , and Dercon et al. ( 2014 ) ( in the untrained group all find take-up rates of less than 5 percent. extensive does not give Moreover, the margin alone the…”
Vulnerability to drought and food price shocks : evidence from Ethiopia (2016, background): “Agricultural index insurance has been piloted in a number of sites in Ethiopia, and research suggests that if offered through the right institutional set-up, and with some subsidization of marketing costs, it will be purchased by a number of farmers (Berhane et al., 2012; Dercon et al., 2014).”
Index Insurance Quality and Basis Risk: Evidence from Northern Kenya (2016, methodology): “Other articles use simulations, aggregate-level data, and/or experiments to examine basis risk (e.g., Breustedt, Bokusheva, and Heidelbach 2008; Clarke 2011; Norton, Turvey, and Osgood 2012; Elabed et al. 2013; Dercon et al. 2014; Leblois, Quirion, and Sultan 2014).”
Technological Innovations, Downside Risk, and the Modernization of Agriculture (2016, background): “The practical issue that has arisen, however, has been the repeated considerable difficulties with the uptake of insurance without high subsidies (Giné, Townsend, and Vickery, 2008; Mobarak and Rosenzweig, 2012; Cole et al., 2013; Dercon et al., 2014; Karlan et al., 2014).”