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

  • Cai, Jing
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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.

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File URL: https://mpra.ub.uni-muenchen.de/46864/1/MPRA_paper_46864.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46864.

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Date of creation: 09 May 2013
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Handle: RePEc:pra:mprapa:46864
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  1. 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 905-26, August.
  2. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  3. Cole, Shawn & Gine, Xavier & Tobacman, Jeremy & Topalova, Petia & Townsend, Robert & Vickery, James, 2010. "Barriers to household risk management : evidence from India," Policy Research Working Paper Series 5504, The World Bank.
  4. Xavier Giné & Robert M. Townsend & James Vickery, 2007. "Patterns of rainfall insurance participation in rural India," Staff Reports 302, Federal Reserve Bank of New York.
  5. 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 223-44, April.
  6. Gine, Xavier & Yang, Dean, 2007. "Insurance, credit, and technology adoption : field experimental evidence from Malawi," Policy Research Working Paper Series 4425, The World Bank.
  7. Dean Karlan & Christopher Udry & Isaac Osei-Akoto & Robert Darko Osei, 2012. "Agricultural Decisions after Relaxing Credit and Risk Constraints," Working Papers 1019, Economic Growth Center, Yale University.
  8. Adriano A. Rampini & S. Viswanathan, 2016. "Household Risk Management," NBER Working Papers 22293, National Bureau of Economic Research, Inc.
  9. Stefan Dercon & Luc Christiaensen, 2007. "Consumption risk, technology adoption and poverty traps: evidence from Ethiopia," CSAE Working Paper Series 2007-06, Centre for the Study of African Economies, University of Oxford.
  10. Morduch, J., 1995. "Income Smoothing and Consumption Smoothing," Papers 512, Harvard - Institute for International Development.
  11. Robert Jensen, 2000. "Agricultural Volatility and Investments in Children," American Economic Review, American Economic Association, vol. 90(2), pages 399-404, May.
  12. 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 2350-90, October.
  13. Cai, Jing & de Janvry, Alain & Sadoulet, Elisabeth, 2013. "Social Networks and the Decision to Insure," MPRA Paper 46861, University Library of Munich, Germany.
  14. 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.
  15. Carter, Michael R. & Galazara, Francisco & 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.
  16. 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 255-98, January.
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