IDEAS home Printed from https://ideas.repec.org/p/ags/aaea10/61002.html
   My bibliography  Save this paper

Perceptions and Participation: Mistaken Beliefs, Encouragement Designs, and Demand for Index Insurance

Author

Listed:
  • Mullally, Conner
  • Boucher, Stephen R.
  • Carter, Michael R.

Abstract

Index insurance is an alternative to crop insurance that bases payouts on a variable that is highly correlated with income but beyond the control of individual households, such as rainfall, temperature, or area-yields (i.e., output per hectare in a large area). Index insurance offers risk protection while avoiding the incentive problems that plague traditional crop insurance, and as a result is seen by many as a promising antipoverty tool. However, participation in index insurance to this point has generally been in low. In this paper, we explore one factor that might potentially depress demand for index insurance: mistaken beliefs among farmers with respect to the distribution of the insured risk. Our experiences from an area-yield insurance pilot project for cotton farmers in the Pisco valley of Peru suggest that such errors are common. Lower demand means that not only are the benefits of index insurance not realized by households, but econometric measurement of the these benefits is more difficult due to low precision. One way to counteract these effects is a “randomized encouragement design,” i.e., the random assignment of positive economic incentives for the purchase of area-yield insurance, such as discount coupons. We examine the implications of a randomized encouragement design for econometric evaluation.

Suggested Citation

  • 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.
    • Handle: RePEc:ags:aaea10:61002
    DOI: 10.22004/ag.econ.61002
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/61002/files/11707.doc.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.61002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hazell, P. B. R. & Miranda, Mario & Skees, Jerry, 1999. "New approaches to crop yield insurance in developing countries:," EPTD discussion papers 55, International Food Policy Research Institute (IFPRI).
    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


    Cited by:

    1. Boyd, Chris M. & Bellemare, Marc F., 2022. "Why not insure prices? Experimental evidence from Peru," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 580-631.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sardorbek Musayev & Jonathan Mellor & Tara Walsh & Emmanouil Anagnostou, 2021. "Development of an Agent-Based Model for Weather Forecast Information Exchange in Rural Area of Bahir Dar, Ethiopia," Sustainability, MDPI, vol. 13(9), pages 1-21, April.
    2. Glauber, Joseph W., 2017. "Agricultural insurance and the WTO:," IFPRI book chapters, in: Bouët, Antoine; Laborde Debucquet, David (ed.), Agriculture, development, and the global trading system: 2000– 2015, chapter 10, International Food Policy Research Institute (IFPRI).
    3. Alexis Berg & Philippe Quirion & Benjamin Sultan, 2009. "Weather-index drought insurance in Burkina-Faso: assessment of its potential interest to farmers," Post-Print hal-00520893, HAL.
    4. World Bank, 2001. "Risk Management in South Asia : A Poverty Focused Approach," World Bank Publications - Reports 15449, The World Bank Group.
    5. Baquero-Haeberlin, Irma & Barreto-Triana, Nancy & Espitia-Malagón, Eduardo & Falck Zepeda, José & Fierro-Guzmán, Humberto & López, Nancy, 2006. "An exploration of the potential benefits of integrated pest management systems and the use of insect resistant potatoes to control the Guatemalan Tuber Moth (Tecia solanivora Povolny) in Ventaquemada,," EPTD discussion papers 152, International Food Policy Research Institute (IFPRI).
    6. Bokusheva, Raushan, 2010. "Measuring the dependence structure between yield and weather variables," MPRA Paper 22786, University Library of Munich, Germany.
    7. Ward, Patrick S. & Spielman, David J. & Ortega, David L. & Kumar, Neha & Minocha, Sumedha, 2015. "Demand for Complementary Financial and Technological Tools for Managing Drought Risk: Evidence from Rice Farmers in Bangladesh," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 204882, Agricultural and Applied Economics Association.
    8. Dissemin, uploaded via & Berg, Alexis & Quirion, Philippe & Sultan, Benjamin, 2018. "Weather-index drought insurance in Burkina-Faso: assessment of its potential interest to farmers," OSF Preprints dsmqz, Center for Open Science.
    9. Kelly, Valerie A., 2000. "Sahelian Input Markets: Recent Progress And Remaining Challenges," Staff Paper Series 11510, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    10. Amos Gitau Njuguna & Abigael Arunga, 2013. "Risk Management Practices: A Survey of Micro-Insurance Service Providers in Kenya," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 4(1), pages 132-150, January.
    11. Antoine Leblois & Philippe Quirion, 2013. "Agricultural insurances based on meteorological indices: realizations, methods and research challenges," Post-Print hal-00656778, HAL.
    12. Juárez-Torres, Miriam & Sánchez-Aragón, Leonardo & Vedenov, Dmitry, 2017. "Weather Derivatives and Water Management in Developing Countries: An Application for an Irrigation District in Central Mexico," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(2), May.
    13. Daniel J. Clarke, 2016. "A Theory of Rational Demand for Index Insurance," American Economic Journal: Microeconomics, American Economic Association, vol. 8(1), pages 283-306, February.
    14. Paul J. Block & Kenneth Strzepek & Mark W. Rosegrant & Xinshen Diao, 2008. "Impacts of considering climate variability on investment decisions in Ethiopia," Agricultural Economics, International Association of Agricultural Economists, vol. 39(2), pages 171-181, September.
    15. Kemeze, Francis H. & Miranda, Mario J. & Kuwornu, John & Amin-Somuah, Henry, 2016. "Optimal Management of Runoff Reservoir Supply: The Case of Tono Reservoir in Northern Ghana," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236030, Agricultural and Applied Economics Association.
    16. Patrick S. Ward & David L. Ortega & David J. Spielman & Neha Kumar & Sumedha Minocha, 2020. "Demand for Complementary Financial and Technological Tools for Managing Drought Risk," Economic Development and Cultural Change, University of Chicago Press, vol. 68(2), pages 607-653.
    17. Bokusheva, Raushan & Breustedt, Gunnar, 2012. "The Effectiveness of Weather-Based Index Insurance and Area-Yield Crop Insurance: How Reliable are ex post Predictions for Yield Risk Reduction?," Quarterly Journal of International Agriculture, Humboldt-Universitaat zu Berlin, vol. 51(2), pages 1-22, May.
    18. Stephan Dietrich, 2017. "Coping with Shocks: Impact of Insurance Payouts on Small-Scale Farmers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(2), pages 348-369, April.
    19. Bokusheva, Raushan & Breustedt, Gunnar & Heidelbach, Olaf, 2007. "Ex-ante evaluation of weather-based index insurance and area-yield insurance for reducing crop yield risk," 101st Seminar, July 5-6, 2007, Berlin Germany 9250, European Association of Agricultural Economists.
    20. Skees, Jerry & Gober, Stephanie & Varangis, Panos & Le, 2001. "Developing rainfall-based index insurance in Morocco," Policy Research Working Paper Series 2577, The World Bank.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea10:61002. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.