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Insurance Market Efficiency and Crop Choices in Pakistan

  • Marcel Fafchamps
  • Takashi Kurosaki

This paper tests the efficiency of insurance markets in the Pakistan Punjab by examining how crop choices are affected by the presence of price and yield risk. We estimate reduced-form and structural models of crop choices. Although we cannot reject the hypothesis that village members efficiently share risk among themselves, production choices are shown to depend on risk. Existing risk sharing and self-insurance mechanisms thus imperfectly protect Punjab farmers against village-level shocks. Results also indicate that households respond to consumption price risk, thereby suggesting that empirical and theoretical work on risk should avoid putting an exclusive emphasis on yield and output price risk.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 12.

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Date of creation: 01 Jul 2000
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Handle: RePEc:oxf:wpaper:12
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