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The effect of weather index insurance on social capital: Experimental evidence from Ethiopia

Author

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  • Nigus, Halefom

    (UNU-MERIT)

  • Nillesen, Eleonora

    (UNU-MERIT)

  • Mohnen, Pierre

    (UNU-MERIT)

Abstract

In this study, using data from lab-in-the-field experiment, we explore whether the introduction of weather index insurance crowds in or crowds out social capital in northern Ethiopia. We use contributions in the public good game as a measure of social capital. We find that weather index insurance crowds out social capital. The free-riding problem created by the positive externality of weather index insurance and development of self-sufficiency behaviour are found to be the causal mechanisms behind the crowding out phenomenon. Our results indicate that formal insurance mechanisms do not occur in a vacuum and may have unintended effects. Hence, this study suggests that novel insurance product design and marketing strategies should be used to ameliorate such unintended effects.

Suggested Citation

  • Nigus, Halefom & Nillesen, Eleonora & Mohnen, Pierre, 2018. "The effect of weather index insurance on social capital: Experimental evidence from Ethiopia," MERIT Working Papers 2018-007, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:unumer:2018007
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    File URL: https://www.merit.unu.edu/publications/wppdf/2018/wp2018-007.pdf
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    References listed on IDEAS

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    Cited by:

    1. Kaelab K. Haile & Eleonora Nillesen & Nyasha Tirivayi, 2019. "Impact of Formal Climate Risk Transfer Mechanisms on Risk-Aversion: Empirical Evidence from Rural Ethiopia," CESifo Working Paper Series 7717, CESifo.
    2. Haile, Kaleab K. & Nillesen, Eleonora & Tirivayi, Nyasha, 2020. "Impact of formal climate risk transfer mechanisms on risk-aversion: Empirical evidence from rural Ethiopia," World Development, Elsevier, vol. 130(C).

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    More about this item

    Keywords

    Weather index insurance; social capital; public goods game; Ethiopia;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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