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

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Author Info
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)

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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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Publisher Info
Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 09-034.

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Length: 35 pages
Date of creation: 24 Sep 2009
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Handle: RePEc:pen:papers:09-034

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Related research
Keywords: Microinsurance; Trust; Natural Field Experiment;

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Find related papers by JEL classification:
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

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  1. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Credit Market Constraints, Consumption Smoothing, and the Accumulation of Durable Production Assets in Low-Income Countries: Investment in Bullocks in India," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 223-44, April. [Downloadable!] (restricted)
  2. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December. [Downloadable!] (restricted)
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  3. Duflo, Esther & Glennerster, Rachel & Kremer, Michael, 2007. "Using Randomization in Development Economics Research: A Toolkit," CEPR Discussion Papers 6059, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Besley, Timothy, 1995. "Savings, credit and insurance," Handbook of Development Economics, in: Hollis Chenery† & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 36, pages 2123-2207 Elsevier. [Downloadable!] (restricted)
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