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How does risk management influence production decisions? evidence from a field experiment

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  • Cole,Shawn A.
  • Gine,Xavier
  • Vickery,James

Abstract

Weather is a key source of income risk, especially in emerging market economies. This paper uses a randomized controlled trial involving Indian farmers to study how an innovative rainfall insurance product affects production decisions. The authors find that insurance provision induces farmers to invest more in higher-return but rainfall-sensitive cash crops, particularly among educated farmers. This shift in behavior occurs ex ante, when realized monsoon rainfall is still uncertain. The results suggest that financial innovation can mitigate the real effects of uninsured production risk.

Suggested Citation

  • Cole,Shawn A. & Gine,Xavier & Vickery,James, 2013. "How does risk management influence production decisions? evidence from a field experiment," Policy Research Working Paper Series 6546, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6546
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    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. Brick, Kerri & Visser, Martine, 2015. "Risk preferences, technology adoption and insurance uptake: A framed experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 383-396.
    3. Reyes, Celia M. & Mina, Christian D. & Agbon, Adrian D. & Gloria, Reneli Ann B., 2017. "Opportunities for Strengthening Agriculture Insurance Programs: Philippine Crop Insurance Corporation and LGU Partnerships," Discussion Papers DP 2017-01, Philippine Institute for Development Studies.
    4. Esther Gehrke, 2014. "An employment guarantee as risk insurance? Assessing the effects of the NREGS on agricultural production decisions," Working Papers 152, Bavarian Graduate Program in Economics (BGPE).
    5. 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).
    6. Cynthia Kinnan & Shing-Yi Wang & Yongxiang Wang, 2015. "Relaxing Migration Constraints for Rural Households," Working Papers id:7047, eSocialSciences.
    7. Van Campenhout, Bjorn & Bizimungu, Emmanuel & Birungi, Dorothy, 2016. "Risk and sustainable crop intensification: The case of smallholder rice and potato farmers in Uganda:," IFPRI discussion papers 1521, International Food Policy Research Institute (IFPRI).
    8. Harold Alderman & Ruslan Yemtsov, 2014. "How Can Safety Nets Contribute to Economic Growth?," World Bank Economic Review, World Bank Group, vol. 28(1), pages 1-20.
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    16. 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).
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    More about this item

    Keywords

    Labor Policies; Insurance Law; Debt Markets; Non Bank Financial Institutions; Climate Change Economics;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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