Advanced Search
MyIDEAS: Login

Risk, Credit, and Insurance in Peru: Field Experimental Evidence

Contents:

Author Info

  • Galarza, Francisco

Abstract

This paper reports the results of behavioral economic experiments conducted in Peru to examine the relationship amongst risk preferences, loan take-up, and insurance purchase decisions. This area-based yield insurance can help reduce people's vulnerability to large scale covariate shocks, and can also lower the loan default probability under extreme negative covariate shocks. In a context of collateralized formal credit markets, we provide suggestive evidence that insurance may help reduce the fear of losing collateral that prevents potential borrowers from taking loans. Framing these experiments to recreate a real life situation, we started with a Baseline Game where subjects had to choose between a fallback production project and an uninsured loan.We then introduced a third project choice--loan with yield insurance (Insurance Game)--which allows us to measure the effect of introducing insurance on the demand for loans. Overall, more than 50 percent of the subjects are willing to buy insurance in this insurance game. Further, controling for choices made in the baseline game, covariate shocks experienced earlier, and previous rounds' winnings, we find that the decision to take the insured loan (uninsured loan) rather than any of the other two projects is predicted by wealth and lower (higher) levels of risk aversion. Interestingly, this relationship with risk aversion continues to hold when we control for the overweighting of low-probability events observed in the data.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/17833/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17833.

as in new window
Length:
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:pra:mprapa:17833

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: area-yield insurance; credit; covariate risk; idiosyncratic risk; risk aversion; probability weighting; experimental economics; Peru;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Stephen R. Boucher & Michael R. Carter & Catherine Guirkinger, 2008. "Risk Rationing and Wealth Effects in Credit Markets: Theory and Implications for Agricultural Development," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(2), pages 409-423.
  2. John List & David Reiley, 2008. "Field experiments," Artefactual Field Experiments 00091, The Field Experiments Website.
  3. Theo Offerman & Joep Sonnemans, 2004. "What's Causing Overreaction? An Experimental Investigation of Recency and the Hot-hand Effect," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 533-554, October.
  4. Lybbert, Travis J., 2006. "Indian farmers' valuation of yield distributions: Will poor farmers value `pro-poor' seeds?," Food Policy, Elsevier, vol. 31(5), pages 415-441, October.
  5. Michael Carter & Christopher Barrett, 2006. "The economics of poverty traps and persistent poverty: An asset-based approach," Journal of Development Studies, Taylor & Francis Journals, vol. 42(2), pages 178-199.
  6. Juan Camilo Cardenas & Jeffrey P. Carpenter, 2005. "Experiments and Economic Development: Lessons from Field Labs in the Developing World," Middlebury College Working Paper Series 0505, Middlebury College, Department of Economics.
  7. Xavier Gine & Pamela Jakiela & Dean Karlan & Jonathan Morduch, 2006. "Microfinance games," Framed Field Experiments 00150, The Field Experiments Website.
  8. Galarza, Francisco, 2009. "Choices under Risk in Rural Peru," MPRA Paper 17708, University Library of Munich, Germany.
  9. Robert M. Townsend & Shawn Cole & Jeremy Tobacman & Xavier Gine & James Ian Vickery & Petia Topalova, 2012. "Barriers to Household Risk Management: Evidence from India," IMF Working Papers 12/195, International Monetary Fund.
  10. Gin, Xavier & Yang, Dean, 2009. "Insurance, credit, and technology adoption: Field experimental evidencefrom Malawi," Journal of Development Economics, Elsevier, vol. 89(1), pages 1-11, May.
  11. Abhijit V. Banerjee & Esther Duflo, 2009. "The Experimental Approach to Development Economics," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 151-178, 05.
  12. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Harvard Institute of Economic Research Working Papers 1727, Harvard - Institute of Economic Research.
  13. Xavier Giné & Robert Townsend & James Vickery, 2008. "Patterns of Rainfall Insurance Participation in Rural India," World Bank Economic Review, World Bank Group, vol. 22(3), pages 539-566, October.
  14. Levy, Haim & Levy, Moshe, 2002. " Arrow-Pratt Risk Aversion, Risk Premium and Decision Weights," Journal of Risk and Uncertainty, Springer, vol. 25(3), pages 265-90, November.
  15. Travis Lybbert, 2006. "Indian farmers' valuation of yield distributions: Will poor farmers value 'pro-poor' seeds?," Framed Field Experiments 00187, The Field Experiments Website.
  16. Feder, Gershon, 1980. "Farm Size, Risk Aversion and the Adoption of New Technology under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 32(2), pages 263-83, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Mullally, Conner & Boucher, Stephen R. & Carter, Michael R., 2010. "Perceptions and Participation: Mistaken Beliefs, Encouragement Designs, and Demand for Index Insurance," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61002, Agricultural and Applied Economics Association.
  2. Francisco Galarza, 2009. "Choices under risk in rural peru," Artefactual Field Experiments 00047, The Field Experiments Website.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:17833. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.