Time versus State in Insurance: Experimental Evidence from Contract Farming in Kenya

By L. Casaburi, Jack Willis. The American Economic Review, 2018

177 citations recorded by the source corpus.

The gains from insurance arise from the transfer of income across states. Yet, by requiring that the premium be paid up front, standard insurance products also transfer income across time. We show that this intertemporal transfer can help explain low insurance demand, especially among the poor, and in a randomized control trial in Kenya we test a crop insurance product which removes it. The product is interlinked with a contract farming scheme: as with other inputs, the buyer of the crop offers the insurance and deducts the premium from farmer revenues at harvest time. The take-up rate for pay-at-harvest insurance is 72 percent, compared to 5 percent for the standard pay-up-front contract, and the difference is largest among poorer farmers. Additional experiments and outcomes provide evidence on the role of liquidity constraints, present bias, and counterparty risk, and find that enabling farmers to commit to pay the premium just 1 month later increases demand by 21 percentage points. (JEL G22, I32, O13, O16, Q12, Q14)

Subfields: Economics and Econometrics, Safety Research, Soil Science

View Paper: https://www.semanticscholar.org/paper/6ee380aa918b0c8c45d210b4fa947b07dfd36631

Citations in the corpus

• Using agriculture for development: Supply- and demand-side approaches (2020, unknown): “For example, a contract in an outgrower scheme with a sugar plantation in Kenya provides index insurance to individual farmers with the premium deducted from harvest-time payment for product delivery (Casaburi and Willis, 2018), providing a rare case of large take-up of index insurance without subsi”