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Do disaster experience and knowledge affect insurance take-up decisions?

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  • Cai, Jing
  • Song, Changcheng

Abstract

This study examines the effect of experience and knowledge on weather insurance adoption. First, we conduct insurance games with farmers, and find that the treatment improves real insurance take-up by 46%. The effect is not driven by changes in risk attitudes and perceived probability of disasters, or by learning of insurance benefits, but is driven by the experience acquired in the game. Second, we find that providing information about the payout probability has a strong positive effect on insurance take-up. Finally, when subjects receive both treatments, the probability information has a greater impact on take-up than does the disaster experience.

Suggested Citation

  • Cai, Jing & Song, Changcheng, 2017. "Do disaster experience and knowledge affect insurance take-up decisions?," Journal of Development Economics, Elsevier, vol. 124(C), pages 83-94.
    • Handle: RePEc:eee:deveco:v:124:y:2017:i:c:p:83-94
    DOI: 10.1016/j.jdeveco.2016.08.007
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    7. Kramer, Berber & Porter, Maria & Wassie Bizuayehu, Solomon, 2023. "Basis Risk, Social Comparison, Perceptions of Fairness and Demand for Insurance: A Field Experiment in Ethiopia," 2024 Allied Social Sciences Association (ASSA) Annual Meeting, January 5-7, 2024, San Antonio, Texas 339075, Agricultural and Applied Economics Association.
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    12. Jing Cai & Alain de Janvry & Elisabeth Sadoulet, 2020. "Subsidy Policies and Insurance Demand," American Economic Review, American Economic Association, vol. 110(8), pages 2422-2453, August.
    13. Mogge, Lukas, 2023. "A District-Level Analysis of the Effect of Risk Exposure on the Demand for Index Insurance in Mongolia," Ruhr Economic Papers 1018, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    14. Arnaud Reynaud & Manh-Hung Nguyen & Cécile Aubert, 2018. "Is there a demand for flood insurance in Vietnam? Results from a choice experiment," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(3), pages 593-617, July.
    15. Strobl, Renate, 2022. "Background risk, insurance and investment behaviour: Experimental evidence from Kenya," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 34-68.
    16. Aurélien Baillon & Jeroen de Bruin & Aysil Emirmahmutoglu & Evelien van de Veer & Bram van Dijk, 2019. "Informing, simulating experience, or both: A field experiment on phishing risks," PLOS ONE, Public Library of Science, vol. 14(12), pages 1-15, December.
    17. Bai, Chong-En & Chi, Wei & Liu, Tracy Xiao & Tang, Chao & Xu, Jian, 2021. "Boosting pension enrollment and household consumption by example: A field experiment on information provision," Journal of Development Economics, Elsevier, vol. 150(C).
    18. Adloff, Susann & Rehdanz, Katrin, 2023. "Wait and see? Public preferences for the temporal effectiveness of coastal protection," Ecological Economics, Elsevier, vol. 204(PA).
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    20. Heffetz, Ori, 2021. "Are reference points merely lagged beliefs over probabilities?," Journal of Economic Behavior & Organization, Elsevier, vol. 181(C), pages 252-269.
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    23. Sahar Zavareh Hofmann, 2022. "Build Back Better and Long-Term Housing Recovery: Assessing Community Housing Resilience and the Role of Insurance Post Disaster," Sustainability, MDPI, vol. 14(9), pages 1-23, May.
    24. Moritz, Laura & Kuhn, Lena & Bobojonov, Ihtiyor, 2022. "Crop index insurance for more welfare and climate resilience? An experimental approach," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322096, Agricultural and Applied Economics Association.
    25. Patil, Vikram & Veettil, Prakashan Chellattan & Yashodha, Yashodha, 2021. "Understanding Farmers’ Low Uptake of Crop Insurance in India: A Discrete Choice Experiment Approach," 2021 Conference, August 17-31, 2021, Virtual 315232, International Association of Agricultural Economists.

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    More about this item

    Keywords

    Insurance; Take-up; Game; Experience; Knowledge;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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