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

Author

Listed:
  • Hongbin Cai

    (Department of Applied Economics, Guanghua School of Management, Peking University)

  • Yuyu Chen

    (Department of Applied Economics, Guanghua School of Management, Peking University)

  • Hanming Fang

    (Department of Economics, University of Pennsylvania)

  • Li-An Zhou

    (Department of Applied Economics, Guanghua School of Management, Peking University)

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.

Suggested Citation

  • Hongbin Cai & Yuyu Chen & Hanming Fang & Li-An Zhou, 2009. "Microinsurance, Trust and Economic Development: Evidence from a Randomized Natural Field Experiment," PIER Working Paper Archive 09-034, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:09-034
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    More about this item

    Keywords

    Microinsurance; Trust; Natural Field Experiment;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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