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Formal and informal insurance: experimental evidence from Ethiopia

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  • Berhane, Guush
  • Dercon, Stefan
  • Hill, Ruth
  • Taffesse, Alemayehu

Abstract

We examine the impact of formal insurance and informal risk-sharing institutions on welfare, and the complementarity between these forms of formal and informal insurance. As in a number of other studies, formal rainfall index insurance was offered to farmers. However in this study support to local risk sharing institutions—iddirs—was also provided to strengthen the extent to which they were able to insure members against idiosyncratic shocks. Access to insurance and support to iddirs was randomized across villages during two agricultural seasons. Results show that formal insurance has a significant impact on encouraging productive investments, particularly investments in fertilizer, replicating the results found in Ghana in Karlan et al (2013). Strengthening risk-sharing through iddirs increases formal insurance demand (consistent with the results in Dercon et al 2013) and some welfare outcomes, but does not cause insurance to have any additional effect on productive outcomes. There is also some evidence that strengthening risk-sharing through local institutions reduces individual bilateral transfers.

Suggested Citation

  • Berhane, Guush & Dercon, Stefan & Hill, Ruth & Taffesse, Alemayehu, 2015. "Formal and informal insurance: experimental evidence from Ethiopia," 2015 Conference, August 9-14, 2015, Milan, Italy 211331, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae15:211331
    DOI: 10.22004/ag.econ.211331
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    References listed on IDEAS

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    1. Taffesse, Alemayehu Seyoum & Dorosh, Paul A. & Gemessa, Sinafikeh Asrat, 2012. "Crop production in Ethiopia: Regional patterns and trends," IFPRI book chapters, in: Food and agriculture in Ethiopia: Progress and policy challenges, chapter 3, International Food Policy Research Institute (IFPRI).
    2. Dercon, Stefan, 2004. "Growth and shocks: evidence from rural Ethiopia," Journal of Development Economics, Elsevier, vol. 74(2), pages 309-329, August.
    3. Uregia, Nigussie Tefera & Desta, Mulat Demeke & Rashid, Shahidur, 2012. "Welfare Impacts of Rising Food Prices in Rural Ethiopia: a Quadratic Almost Ideal Demand System Approach," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126261, International Association of Agricultural Economists.
    4. Dercon, Stefan & Hill, Ruth Vargas & Clarke, Daniel & Outes-Leon, Ingo & Seyoum Taffesse, Alemayehu, 2014. "Offering rainfall insurance to informal insurance groups: Evidence from a field experiment in Ethiopia," Journal of Development Economics, Elsevier, vol. 106(C), pages 132-143.
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    Cited by:

    1. Ceballos, F. & Kramer, B. & Robles, M., 2018. "The Feasibility of Picture-Based Crop Insurance (PBI): Smartphone Pictures for Affordable Crop Insurance," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277141, International Association of Agricultural Economists.
    2. Castaing, Pauline & Gazeaud, Jules, 2025. "Do index insurance programs live up to their promises? Aggregating evidence from multiple experiments," Journal of Development Economics, Elsevier, vol. 175(C).
    3. Kramer, Berber & Porter, Maria & Wassie Bizuayehu, Solomon, 2023. "Basis Risk, Social Comparison, Perceptions of Fairness and Demand for Insurance: A Field Experiment in Ethiopia," 2024 Allied Social Sciences Association (ASSA) Annual Meeting, January 5-7, 2024, San Antonio, Texas 339075, Agricultural and Applied Economics Association.
    4. Sibiko, Kenneth W. & Qaim, Matin, 2017. "Weather Index Insurance, Agricultural Input Use, and Crop Productivity in Kenya," GlobalFood Discussion Papers 256214, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    5. Kenneth W. Sibiko & Matin Qaim, 2020. "Weather index insurance, agricultural input use, and crop productivity in Kenya," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 12(1), pages 151-167, February.

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