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Insurance Market Efficiency and Crop Choices in Pakistan

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  • Takashi Kurosaki
  • Marcel Fafchamps

Abstract

This paper tests the efficiency of insurance markets in the Pakistan Punjab by examining how crop choices are affected by the presence of price and yield risk. We estimate reduced-form and structural models of crop choices. Aithough we cannot reject the hypothesis that village members efficiently share risk among themselves, production choices are shown to depend on risk. Existing risk sharing and self-insurance mechanisms thus imperfectly protect Punjab farmers against village-level shocks. Results also indicate that households respond to consumption and input price risk, thereby suggesting that empirical and theoretical work on risk should avoid putting an exclusive emphasis on yield and output price risk.

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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Discussion Paper Series with number a358.

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Date of creation: Nov 1998
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Handle: RePEc:hit:hituec:a358

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Keywords: risk; agricultural development; household models; insurance markets; structural estimation.;

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