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The value of customized insurance for farmers in rural Bangladesh:

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  • Clarke, Danielle
  • Das, Narayan C.
  • de Nicola, Francesca
  • Hill, Ruth Vargas
  • Kumar, Neha
  • Mehta, Parendi

Abstract

Farmers in rural Bangladesh face multiple sources of uninsured risk to agricultural production and household assets. In this paper, we present results from an experimental demand-elicitation exercise in rural Bangladesh to shed light on smallholder farmers’ interest in formal insurance products. We propose a suite of insurance and savings products, and we randomly vary the price of one insurance option (area-yield insurance) and the presence of one of the savings options (group savings). Consistent with economic theory, farmers buy more of the insurance products that cover the risks they primarily face. However, because farmers are subject to a variety of risks, they do not focus on only one type of insurance; instead, they evenly split their endowment between life and disability insurance and agricultural insurance. Demand for area-yield insurance falls with price; we also observe important cross-price elasticities with other insurance products. The presence of group savings does not alter demand for insurance, though group savings is found to be a particularly popular risk management tool, especially when decisions are made in groups.

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Bibliographic Info

Paper provided by International Food Policy Research Institute (IFPRI) in its series IFPRI discussion papers with number 1202.

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Date of creation: 2012
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Handle: RePEc:fpr:ifprid:1202

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Keywords: Risk; Insurance; demand; Elasticity; Decision-making; rural areas;

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References

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  1. Hill, Ruth Vargas & Hoddinott, John & Kumar, Neha, 2011. "Adoption of weather index insurance: Learning from willingness to pay among a panel of households in rural Ethiopia," ESSP working papers 27, International Food Policy Research Institute (IFPRI).
  2. Dionne, G. & Eeckhoudt, L., 1982. "Insurance and Saving: Some Further Results," Cahiers de recherche 8231, Universite de Montreal, Departement de sciences economiques.
  3. Gollier, Christian & Pratt, John W, 1996. "Risk Vulnerability and the Tempering Effect of Background Risk," Econometrica, Econometric Society, vol. 64(5), pages 1109-23, September.
  4. A. Mushfiq Mobarak & Mark Rosenzweig, 2012. "Selling Formal Insurance to the Informally Insured," Working Papers id:4777, eSocialSciences.
  5. EECKHOUDT, Louis & Christian GOLLIER & Harris SCHLESINGER, 1994. "Changes in Background Risk and Risk Taking Behavior," Working Papers 005, Risk and Insurance Archive.
  6. Stefan Dercon & Luc Christiaensen, 2007. "Consumption risk, technology adoption and poverty traps: evidence from Ethiopia," CSAE Working Paper Series 2007-06, Centre for the Study of African Economies, University of Oxford.
  7. Megan Beckett & Julie Da Vanzo & Narayan Sastry & Constantijn Panis & Christine Peterson, 2001. "The Quality of Retrospective Data: An Examination of Long-Term Recall in a Developing Country," Journal of Human Resources, University of Wisconsin Press, vol. 36(3), pages 593-625.
  8. Daniel J. Clarke, 2011. "A Theory of Rational Demand for Index Insurance," Economics Series Working Papers 572, University of Oxford, Department of Economics.
  9. Mahul, Olivier & Verma, Niraj & Clarke, Daniel J., 2012. "Improving farmers'access to agricultural insurance in India," Policy Research Working Paper Series 5987, The World Bank.
  10. Francesca de Nicola, 2011. "The Impact of Weather Insurance on Consumption, Investment, and Welfare," 2011 Meeting Papers 548, Society for Economic Dynamics.
  11. Peter Davis, 2007. "Discussions Among the Poor: Exploring Poverty Dynamics With Focus Groups in Bangladesh," Working Papers id:1106, eSocialSciences.
  12. del Ninno, Carlo & Dorosh, Paul A. & Smith, Lisa C. & Roy, Dilip K., 2001. "The 1998 floods in Bangladesh: disaster impacts, household coping strategies, and responses," Research reports 122, International Food Policy Research Institute (IFPRI).
  13. Park, Cheolsung, 2006. "Risk Pooling between Households and Risk-Coping Measures in Developing Countries: Evidence from Rural Bangladesh," Economic Development and Cultural Change, University of Chicago Press, vol. 54(2), pages 423-57, January.
  14. Clarke, Daniel J. & Mahul, Olivier & Rao, Kolli N. & Verma, Niraj, 2012. "Weather based crop insurance in India," Policy Research Working Paper Series 5985, The World Bank.
  15. Ruth Vargas Hill, 2009. "Using Stated Preferences and Beliefs to Identify the Impact of Risk on Poor Households," Journal of Development Studies, Taylor & Francis Journals, vol. 45(2), pages 151-171.
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Cited by:
  1. Ahmed, T., 2013. "Scoping report: Current status of index-based insurance in Bangladesh," Working Papers, The WorldFish Center, number 40289.

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