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Indirect protection: the impact of cotton insurance on farmers’ income portfolio in Burkina Faso

Author

Listed:
  • Stoeffler, Quentin
  • Wouter, Gelade
  • Catherine, Guirkinger
  • Michael, Carter

Abstract

While risk is known to harm farmers’ production investments, there is still limited evidence of index-insurance impact on household ex-ante behavior. This paper studies a pilot area-yield index insurance project sold to cotton farmer groups in Burkina Faso. Insurance sales were randomized, and in the treatment area, an encouragement design was generated by providing premium subsidies (between 25% and 75%) randomly distributed to farmer groups. No impact was found on cotton production, most likely in reason of the late sale period (during the sowing period). However, substantial and significant impacts were found on several activities and assets such as field investments, sesame cultivation and livestock herding. The mechanisms behind these indirect effects are discussed. Overall, the findings suggest a promising role of index insurance for stimulating ex-ante investments, but also draws attention on implementation gaps which currently threaten this type of intervention.

Suggested Citation

  • Stoeffler, Quentin & Wouter, Gelade & Catherine, Guirkinger & Michael, Carter, 2016. "Indirect protection: the impact of cotton insurance on farmers’ income portfolio in Burkina Faso," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235980, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea16:235980
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    File URL: http://purl.umn.edu/235980
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    References listed on IDEAS

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    1. Harold Alderman & John Hoddinott & Bill Kinsey, 2006. "Long term consequences of early childhood malnutrition," Oxford Economic Papers, Oxford University Press, vol. 58(3), pages 450-474, July.
    2. Carter, Michael R. & Lybbert, Travis J., 2012. "Consumption versus asset smoothing: testing the implications of poverty trap theory in Burkina Faso," Journal of Development Economics, Elsevier, vol. 99(2), pages 255-264.
    3. Michael Carter & Ghada Elabed & Elena Serfilippi, 2015. "Behavioral economic insights on index insurance design," Agricultural Finance Review, Emerald Group Publishing, vol. 75(1), pages 8-18, May.
    4. Manuela Angelucci & Giacomo De Giorgi, 2009. "Indirect Effects of an Aid Program: How Do Cash Transfers Affect Ineligibles' Consumption?," American Economic Review, American Economic Association, vol. 99(1), pages 486-508, March.
    5. repec:oup:qjecon:v:132:y:2017:i:2:p:811-870. is not listed on IDEAS
    6. 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.
    7. Oriana Bandiera & Robin Burgess & Narayan Das & Selim Gulesci & Imran Rasul & Munshi Sulaiman, 2017. "Labor Markets and Poverty in Village Economies," The Quarterly Journal of Economics, Oxford University Press, vol. 132(2), pages 811-870.
    8. 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.
    9. Boucher, Stephen R. & Carter, Michael R. & Guirkinger, Catherine, 2008. "AJAE Appendix: Risk Rationing and Wealth Effects in Credit Markets: Theory and Implications for Agriculture Development," American Journal of Agricultural Economics Appendices, Agricultural and Applied Economics Association, vol. 90(2), May.
    10. Hans P. Binswanger-Mkhize, 2012. "Is There Too Much Hype about Index-based Agricultural Insurance?," Journal of Development Studies, Taylor & Francis Journals, vol. 48(2), pages 187-200, February.
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    More about this item

    Keywords

    Index insurance; cotton; Burkina Faso; risk; indirect impact; productive investments; Agricultural Finance; Crop Production/Industries; Food Security and Poverty; International Development; Research and Development/Tech Change/Emerging Technologies; Risk and Uncertainty; D91; G22; I38; O12; O13; O22; O33; Q12;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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