IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/46864.html
   My bibliography  Save this paper

The Impact of Insurance Provision on Households’ Production and Financial Decisions

Author

Listed:
  • Cai, Jing

Abstract

Taking advantage of a natural experiment and a rich household-level panel dataset, this paper tests the impact of an agricultural insurance program on household level production, borrowing, and saving. The empirical strategy includes both difference-in-difference and triple difference estimations. I find that, first, introducing insurance increases the production area of insured crops by around 20% and decreases production diversification; second, provision of insurance raises the credit demand by 25%; third, it decreases household saving by more than 30%; fourth, the effect of insurance on borrowing persists in the long-run, while the effect on saving is significant only in the medium-run; and fifth, the impact of insurance is greater on larger farmers and on households with lower migration remittance.

Suggested Citation

  • Cai, Jing, 2013. "The Impact of Insurance Provision on Households’ Production and Financial Decisions," MPRA Paper 46864, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:46864
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/46864/1/MPRA_paper_46864.pdf
    File Function: original version
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Esther Duflo & Michael Kremer & Jonathan Robinson, 2011. "Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya," American Economic Review, American Economic Association, vol. 101(6), pages 2350-2390, October.
    2. Dercon, Stefan & Christiaensen, Luc, 2011. "Consumption risk, technology adoption and poverty traps: Evidence from Ethiopia," Journal of Development Economics, Elsevier, vol. 96(2), pages 159-173, November.
    3. Shawn Cole & Xavier Gine & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2013. "Barriers to Household Risk Management: Evidence from India," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 104-135, January.
    4. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Credit Market Constraints, Consumption Smoothing, and the Accumulation of Durable Production Assets in Low-Income Countries: Investment in Bullocks in India," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 223-244, April.
    5. Dean Karlan & Robert Osei & Isaac Osei-Akoto & Christopher Udry, 2014. "Agricultural Decisions after Relaxing Credit and Risk Constraints," The Quarterly Journal of Economics, Oxford University Press, vol. 129(2), pages 597-652.
    6. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    7. Feder, Gershon & Just, Richard E & Zilberman, David, 1985. "Adoption of Agricultural Innovations in Developing Countries: A Survey," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 255-298, January.
    8. Robert Jensen, 2000. "Agricultural Volatility and Investments in Children," American Economic Review, American Economic Association, vol. 90(2), pages 399-404, May.
    9. Gin, Xavier & Yang, Dean, 2009. "Insurance, credit, and technology adoption: Field experimental evidencefrom Malawi," Journal of Development Economics, Elsevier, vol. 89(1), pages 1-11, May.
    10. Carter, Michael R. & Galarza, Francisco B. & Boucher, Steve, 2007. "Underwriting Area-based Yield Insurance to Crowd- in Credit Supply Demand," Working Papers 190918, University of California, Davis, Department of Agricultural and Resource Economics.
    11. Jing Cai & Alain De Janvry & Elisabeth Sadoulet, 2015. "Social Networks and the Decision to Insure," American Economic Journal: Applied Economics, American Economic Association, vol. 7(2), pages 81-108, April.
    12. Xavier Giné & Robert Townsend & James Vickery, 2008. "Patterns of Rainfall Insurance Participation in Rural India," World Bank Economic Review, World Bank Group, vol. 22(3), pages 539-566, October.
    13. S. Viswanathan & Adriano Rampini, 2013. "Household risk management," 2013 Meeting Papers 647, Society for Economic Dynamics.
    14. Rosenzweig, Mark R & Stark, Oded, 1989. "Consumption Smoothing, Migration, and Marriage: Evidence from Rural India," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 905-926, August.
    15. Jing Cai & Changcheng Song, 2016. "Do Disaster Experience and Knowledge Affect Insurance Take-up Decisions?," NBER Working Papers 22403, National Bureau of Economic Research, Inc.
    16. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 103-114, Summer.
    17. Carter, Michael R. & Galarza, Francisco & Boucher, Stephen, 2007. "Underwriting area-based yield insurance to crowd-in credit supply and demand," MPRA Paper 24326, University Library of Munich, Germany.
    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. Felipe Kast & Dina Pomeranz, 2013. "Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile," Harvard Business School Working Papers 14-001, Harvard Business School, revised Jun 2014.
    2. Ceballos, Francisco, 2016. "Estimating spatial basis risk in rainfall index insurance: Methodology and application to excess rainfall insurance in Uruguay," IFPRI discussion papers 1595, International Food Policy Research Institute (IFPRI).
    3. Reyes, Celia M. & Mina, Christian D. & Agbon, Adrian D. & Arboneda, Arkin, 2017. "Crop Insurance Program of the Philippine Crop Insurance Corporation: Integrative Report from the Five Case Regions in the Philippines," Discussion Papers DP 2017-39, Philippine Institute for Development Studies.
    4. Alain de JANVRY & Elisabeth SADOULET & Manzoor DAR & Kyle EMERICK, 2016. "The Agricultural Technology Adoption Puzzle: What Can We Learn From Field Experiments?," Working Papers P178, FERDI.
    5. Cai, Jing & Song, Changcheng, 2017. "Do disaster experience and knowledge affect insurance take-up decisions?," Journal of Development Economics, Elsevier, vol. 124(C), pages 83-94.
    6. Sarah A. Janzen & Michael R. Carter, 2013. "After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection," NBER Working Papers 19702, National Bureau of Economic Research, Inc.
    7. Jing Cai & Changcheng Song, 2016. "Do Disaster Experience and Knowledge Affect Insurance Take-up Decisions?," NBER Working Papers 22403, National Bureau of Economic Research, Inc.
    8. Hill, Ruth Vargas & Kumar, Neha & Magnan, Nicholas & Makhija, Simrin & de Nicola, Francesca & Spielman, David J. & Ward, Patrick S., 2017. "Insuring against droughts: Evidence on agricultural intensification and index insurance demand from a randomized evaluation in rural Bangladesh," IFPRI discussion papers 1630, International Food Policy Research Institute (IFPRI).
    9. 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.

    More about this item

    Keywords

    Insurance; Production; Borrowing; Saving;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:pra:mprapa:46864. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.