Insurance, Credit, and Technology Adoption: Field Experimental Evidence from Malawi

By X. Giné, Dean Yang. 2007

757 citations recorded by the source corpus.

The adoption of new agricultural technologies may be discouraged because of their inherent riskiness. This study implemented a randomized field experiment to ask whether the provision of insurance against a major source of production risk induces farmers to take out loans to invest in a new crop variety. The study sample was composed of roughly 800 maize and groundnut farmers in Malawi, where by far the dominant source of production risk is the level of rainfall. We randomly selected half of the farmers to be offered credit to purchase high-yielding hybrid maize and improved groundnut seeds for planting in the November 2006 crop season. The other half of the farmers were offered a similar credit package but were also required to purchase (at actuarially fair rates) a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall. Surprisingly, take up was lower by 13 percentage points among farmers offered insurance with the loan. Take-up was 33.0 percent for farmers who were offered the uninsured loan. There is suggestive evidence that the reduced take-up of the insured loan was due to the high cognitive cost of evaluating the insurance: insured loan take-up was positively correlated with farmer education levels. By contrast, the take-up of the uninsured loan was uncorrelated with farmer education.

Subfields: Economics and Econometrics, General Agricultural and Biological Sciences, Soil Science

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Citations in the corpus

The Impact of Insurance Provision on Household Production and Financial Decisions (2016, background): “1For example, Giné et al. (2008) find a low take-up rate (4.”
The Effect of Rural Credit on Deforestation: Evidence from the Brazilian Amazon (2019, background): “Credit supply has been positively associated with poverty reduction (Burgess and Pande, 2005), and agricultural investment and consumption smoothing (Rosenzweig and Wolpin, 1993; Conning and Udry, 2007; Giné and Yang, 2009).”
Measuring risk attitudes among Mozambican farmers (2014, background): “For example, in several countries, weather insurance pilot projects have begun (e.g., Giné and Yang 2009; Hill and Viceisza 2010).”
Airtime transfers and mobile communications: Evidence in the aftermath of natural disasters (2016, background): “Second, these transfers are sent in response to large, covariate shocks, rather than the geographically isolated, idiosyncratic shocks that are the focus of much of the existing risk sharing literature (Townsend 1994, De Vreyer et al. 2010, Gine & Yang 2009).”
A field experiment on the impact of weather shocks and insurance on risky investment (2011, neutral): “Although a number of recent experimental studies have been conducted in which weather-index based insurance has been randomly allocated, thereby allowing an empirical test of this hypothesis (Giné and Yang 2007; Giné et al. 2008), insufficient take up of insurance has not allowed for an assessment o”
Productivity, credit, risk, and the demand for weather index insurance in smallholder agriculture in Ethiopia (2013, background): “However, when WII products have been directly marketed to farming households in developing countries in pilot applications, uptake has typically been quite low (Cole et al., 2012), and insurance if anything appears to depress credit use (Gine and Yang, 2009).”
Transfers, diversification and household risk strategies : experimental evidence with lessons for climate change adaptation (2012, neutral): “A notable exception is the growing body of studies analyzing weather insurance interventions showing mixed results on take-up and effectiveness of such interventions (Cole et al., 2009; Giné and Yang, 2009).”
The Effect of Microinsurance on Economic Activities: Evidence from a Randomized Field Experiment (2015, background): “Gine et al. (2008) studied the determinants of purchasing an innovative rainfall insurance policy offered to small farmers in rural India. They find that insurance take-up is decreasing in the basis risk between insurance payouts and income fluctuations, increasing in household wealth and decreasing”
Time versus State in Insurance: Experimental Evidence from Contract Farming in Kenya (2018, background): “While we study the impact of offering loans to buy insurance on credit, several studies have tried insuring loans ( Giné and Yang 2009; Carter, Cheng, and Sarris 2011; Karlan et al. 2011 , finding that demand for loans increases little, and in some cases decreases, when doing so.”
Using agriculture for development: Supply- and demand-side approaches (2020, neutral): “5% interest rate for 10 months) for high-yielding maize and groundnuts was taken by 33% of the farmers (Giné and Yang, 2009).”