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Investment, Insurance and Weather Shocks: Evidence from a Lab Experiment in Cambodia

Author

Listed:
  • Chiara FALCO

    ()

  • Douch KONG

    ()

  • Valentina ROTONDI

    ()

  • Valeria SPELTA

    ()

Abstract

The paper studies the relationships between investment and insurance under risk and ambiguity. It makes use of a lab experiment to show that under ambiguity poor farmers experience a substitution effect between in- vestment and insurance. Moreover, although having the possibility to purchase an insurance increases, overall, the investment in profitable but risky inputs, this effect is heterogeneous across wealth and uncertainty status. Subsidies positively affect insurance purchase, negatively affect investment in risky inputs and reduce the substitution effect experienced by poor farmers. Finally, the paper shows that under ambiguity people rely on heuristic tools.

Suggested Citation

  • Chiara FALCO & Douch KONG & Valentina ROTONDI & Valeria SPELTA, 2016. "Investment, Insurance and Weather Shocks: Evidence from a Lab Experiment in Cambodia," Departmental Working Papers 2016-10, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2016-10
    as

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    File URL: http://wp.demm.unimi.it/files/wp/2016/DEMM-2016_10wp.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Uncertainty; Insurance; Investment Response; Rural Development; Climate Change;

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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