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Microinsurance, Trust and Economic Development: Evidence from a Randomized Natural Field Experiment

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  • Hongbin Cai
  • Yuyu Chen
  • Hanming Fang
  • Li-An Zhou

Abstract

We report results from a large randomized natural field experiment conducted in southwestern China in the context of insurance for sows. Our study sheds light on two important questions about microinsurance. First, how does access to formal insurance affect farmers' production decisions? Second, what explains the low takeup rate of formal insurance, despite substantial premium subsidy from the government? We find that providing access to formal insurance significantly increases farmers' tendency to raise sows. We argue that this finding also suggests that farmers are not previously insured efficiently through informal mechanisms. We also provide several pieces of evidence suggesting that trust, or lack thereof, for government-sponsored insurance products is a significant barrier for farmers' willingness to participate in the insurance program.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15396.

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Date of creation: Oct 2009
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Handle: RePEc:nbr:nberwo:15396

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  1. Duflo, Esther & Glennerster, Rachel & Kremer, Michael, 2007. "Using Randomization in Development Economics Research: A Toolkit," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6059, C.E.P.R. Discussion Papers.
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  8. Gine, Xavier & Townsend, Robert & Vickery, James, 2007. "Patternsof rainfall insurance participation in rural India," Policy Research Working Paper Series 4408, The World Bank.
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