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Does Index Insurance Crowd In or Crowd Out Informal Risk Sharing? Evidence from Rural Ethiopia

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  • Kazushi Takahashi
  • Christopher B Barrett
  • Munenobu Ikegami

Abstract

We study how the introduction of a formal index insurance product affects informal risk-sharing among pastoralists in southern Ethiopia. Using detailed social networks data, randomized incentives to purchase the insurance product, and hypothetical informal transfer data that mirror the existing customary arrangements, we find respondents’ own formal insurance uptake has no significant effect on their willingness to share risk through customary institutions. We also find weak evidence that a randomly matched peer’s insurance uptake positively influences respondents’ willingness to make informal transfers to that match. Overall, our results imply that in this context index insurance does not crowd out informal risk-sharing mediated by social networks.

Suggested Citation

  • Kazushi Takahashi & Christopher B Barrett & Munenobu Ikegami, 2019. "Does Index Insurance Crowd In or Crowd Out Informal Risk Sharing? Evidence from Rural Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(3), pages 672-691.
    • Handle: RePEc:oup:ajagec:v:101:y:2019:i:3:p:672-691.
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    File URL: http://hdl.handle.net/10.1093/ajae/aay042
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    Citations

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    Cited by:

    1. Berg, Erlend & Blake, Michael & Morsink, Karlijn, 2022. "Risk sharing and the demand for insurance: Theory and experimental evidence from Ethiopia," Journal of Economic Behavior & Organization, Elsevier, vol. 195(C), pages 236-256.
    2. Takahashi, Kazushi & Noritomo, Yuma & Ikegami, Munenobu & Jensen, Nathaniel D., 2020. "Understanding pastoralists’ dynamic insurance uptake decisions: Evidence from four-year panel data in Ethiopia," Food Policy, Elsevier, vol. 95(C).
    3. Haddis Solomon & Yoko Kijima, 2022. "Does Land Certification Mitigate the Negative Impact of Weather Shocks? Evidence from Rural Ethiopia," Sustainability, MDPI, vol. 14(19), pages 1-17, October.
    4. Bramoullé, Yann & Bene, Tizié & Deroïan, Frédéric, 2021. "Formal insurance and altruism networks," CEPR Discussion Papers 16621, C.E.P.R. Discussion Papers.
    5. Claude Lefèvre & Stéphane Loisel & Pierre Montesinos, 2020. "Bounding Basis-Risk Using s-convex Orders on Beta-unimodal Distributions," Post-Print hal-02611227, HAL.
    6. Anderberg, Dan & Morsink, Karlijn, 2020. "The introduction of formal insurance and its effect on redistribution," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 22-45.
    7. Ayako Matsuda & Kazushi Takahashi & Munenobu Ikegami, 2019. "Direct and indirect impact of index-based livestock insurance in Southern Ethiopia," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(3), pages 481-502, July.
    8. Meike Will & Jürgen Groeneveld & Karin Frank & Birgit Müller, 2021. "Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model," PLOS ONE, Public Library of Science, vol. 16(3), pages 1-18, March.
    9. Mark R. Rosenzweig & Christopher R. Udry, 2019. "Assessing the Benefits of Long-Run Weather Forecasting for the Rural Poor: Farmer Investments and Worker Migration in a Dynamic Equilibrium Model," NBER Working Papers 25894, National Bureau of Economic Research, Inc.
    10. Jensen, Nathaniel D. & Mude, Andrew G. & Barrett, Christopher B., 2018. "How basis risk and spatiotemporal adverse selection influence demand for index insurance: Evidence from northern Kenya," Food Policy, Elsevier, vol. 74(C), pages 172-198.
    11. Asadul Islam & C. Matthew Leister & Minhaj Mahmud & Paul A. Raschky, 2020. "Natural disaster and risk-sharing behavior: Evidence from rural Bangladesh," Journal of Risk and Uncertainty, Springer, vol. 61(1), pages 67-99, August.
    12. Kathryn Vasilaky & Sofía Martínez Sáenz & Radost Stanimirova & Daniel Osgood, 2020. "Perceptions of Farm Size Heterogeneity and Demand for Group Index Insurance," Games, MDPI, vol. 11(1), pages 1-21, March.
    13. Leigh Johnson & Tahira Shariff Mohamed & Ian Scoones & Masresha Taye, 2023. "Uncertainty in the drylands: Rethinking in/formal insurance from pastoral East Africa," Environment and Planning A, , vol. 55(8), pages 1928-1950, November.
    14. Christoph Strupat, 2022. "Social Protection and Social Cohesion in Times of the COVID-19 Pandemic: Evidence from Kenya," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(3), pages 1320-1357, June.
    15. Lee Cronk & Athena Aktipis, 2021. "Design principles for risk-pooling systems," Nature Human Behaviour, Nature, vol. 5(7), pages 825-833, July.
    16. Takahashi, Kazushi & Mano, Yukichi & Otsuka, Keijiro, 2019. "Learning from experts and peer farmers about rice production: Experimental evidence from Cote d’Ivoire," World Development, Elsevier, vol. 122(C), pages 157-169.

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