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Evidence of Demand for Index Insurance: Experimental Games and Commercial Transactions in Ethiopia

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  • Michael Norton
  • Daniel Osgood
  • Malgosia Madajewicz
  • Eric Holthaus
  • Nicole Peterson
  • Rahel Diro
  • Conner Mullally
  • Tse-Ling Teh
  • Mengesha Gebremichael

Abstract

We present results of experimental games with smallholder farmers in Tigray, Ethiopia, in 2010, in which participants in the games allocated money across risk management options. One of the options was index insurance that was the same as commercial products sold locally. Participants exhibited clear preferences for insurance contracts with higher frequency payouts and for insurance over other risk management options, including high interest savings. The preference for higher frequency payouts is mirrored in commercial sales of the product, with commercial purchasers paying substantially higher premiums than the minimal, low frequency option available. This combined evidence challenges claims that the very poor universally choose minimal index insurance coverage and supports concerns that demand may outpace supply of responsible insurance products.

Suggested Citation

  • Michael Norton & Daniel Osgood & Malgosia Madajewicz & Eric Holthaus & Nicole Peterson & Rahel Diro & Conner Mullally & Tse-Ling Teh & Mengesha Gebremichael, 2014. "Evidence of Demand for Index Insurance: Experimental Games and Commercial Transactions in Ethiopia," Journal of Development Studies, Taylor & Francis Journals, vol. 50(5), pages 630-648, May.
    • Handle: RePEc:taf:jdevst:v:50:y:2014:i:5:p:630-648
    DOI: 10.1080/00220388.2014.887685
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    References listed on IDEAS

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    1. 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.
    2. Norton, Michael T. & Osgood, Daniel E. & Diro, Rahel & Gebremichael, Mengesha, 2012. "Do Experimental Games Increase Take-up Rates for Index Insurance? A Randomized Control Trial Approach," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124903, Agricultural and Applied Economics Association.
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    Cited by:

    1. Duru, Maya Joan, 2016. "Too Certain to Invest? Public Safety Nets and Insurance Markets in Ethiopia," World Development, Elsevier, vol. 78(C), pages 37-51.
    2. Vilhelm, V. & Špička, J. & Valder, A., 2015. "Public Support of Agricultural Risk Management – Situation and Prospects," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 7(2), pages 1-10, June.
    3. Richard A. Gallenstein & Jon Einar Flatnes & John P. Dougherty & Abdoul G. Sam & Khushbu Mishra, 2021. "The impact of index‐insured loans on credit market participation and risk‐taking," Agricultural Economics, International Association of Agricultural Economists, vol. 52(1), pages 141-156, January.
    4. Asher Siebert, 2016. "Analysis of the future potential of index insurance in the West African Sahel using CMIP5 GCM results," Climatic Change, Springer, vol. 134(1), pages 15-28, January.
    5. Laura Moritz & Lena Kuhn & Ihtiyor Bobojonov, 2023. "The role of peer imitation in agricultural index insurance adoption: Findings from lab‐in‐the‐field experiments in Kyrgyzstan," Review of Development Economics, Wiley Blackwell, vol. 27(3), pages 1649-1672, August.
    6. Leblois, A. & Le Cotty, T. & Maître d'Hôtel, E., 2020. "How Might Climate Change Influence farmers' Demand for Index-Based Insurance?," Ecological Economics, Elsevier, vol. 176(C).
    7. Asher Siebert, 2016. "Analysis of the future potential of index insurance in the West African Sahel using CMIP5 GCM results," Climatic Change, Springer, vol. 134(1), pages 15-28, January.
    8. Peilu Zhang & Marco A. Palma, 2021. "Compulsory Versus Voluntary Insurance: An Online Experiment," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(1), pages 106-125, January.
    9. Devendra Kumar Jain & Asif Chida & R. D. Pathak & Raghbendra Jha & Stephanie Russell, 2022. "Climate risk insurance in Pacific Small Island Developing States: possibilities, challenges and vulnerabilities—a comprehensive review," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 27(3), pages 1-21, March.
    10. Mankaï, Selim & Marchand, Sébastien & Le, Ngoc Ha, 2024. "Valuing insurance against small probability risks: A meta-analysis," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 109(C).
    11. Wong, Ho Lun & Wei, Xiangdong & Kahsay, Haftom Bayray & Gebreegziabher, Zenebe & Gardebroek, Cornelis & Osgood, Daniel E. & Diro, Rahel, 2020. "Effects of input vouchers and rainfall insurance on agricultural production and household welfare: Experimental evidence from northern Ethiopia," World Development, Elsevier, vol. 135(C).
    12. Platteau, Jean-Philippe & De Bock, Ombeline & Gelade, Wouter, 2017. "The Demand for Microinsurance: A Literature Review," World Development, Elsevier, vol. 94(C), pages 139-156.
    13. Sarah Janzen & Nicholas Magnan & Conner Mullally & Soye Shin & I. Bailey Palmer & Judith Oduol & Karl Hughes, 2021. "Can Experiential Games and Improved Risk Coverage Raise Demand for Index Insurance? Evidence from Kenya," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(1), pages 338-361, January.
    14. Glenn W. Harrison & Jia Min Ng, 2019. "Behavioral insurance and economic theory: A literature review," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(2), pages 133-182, July.
    15. J. Nicolas Hernandez-Aguilera & Max Mauerman & Alexandra Herrera & Kathryn Vasilaky & Walter Baethgen & Ana Maria Loboguerrero & Rahel Diro & Yohana Tesfamariam Tekeste & Daniel Osgood, 2020. "Games and Fieldwork in Agriculture: A Systematic Review of the 21st Century in Economics and Social Science," Games, MDPI, vol. 11(4), pages 1-22, October.
    16. Sibiko, Kenneth W. & Veettil, Prakashan C. & Qaim, Matin, 2016. "Small Farmers’ Preferences for Weather Index Insurance: Insights from Kenya," 2016 Fifth International Conference, September 23-26, 2016, Addis Ababa, Ethiopia 246399, African Association of Agricultural Economists (AAAE).
    17. Juan He & Roderick Rejesus & Xiaoyong Zheng & Jose Yorobe, 2018. "Advantageous Selection in Crop Insurance: Theory and Evidence," Journal of Agricultural Economics, Wiley Blackwell, vol. 69(3), pages 646-668, September.
    18. Kathryn Vasilaky & Sofía Martínez Sáenz & Radost Stanimirova & Daniel Osgood, 2020. "Perceptions of Farm Size Heterogeneity and Demand for Group Index Insurance," Games, MDPI, vol. 11(1), pages 1-21, March.
    19. 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).
    20. Ali Raza & Guangji Tong & Vasilii Erokhin & Alexey Bobryshev & Lyubov Chaykovskaya & Natalya Malinovskaya, 2023. "Sustaining Performance of Wheat–Rice Farms in Pakistan: The Effects of Financial Literacy and Financial Inclusion," Sustainability, MDPI, vol. 15(9), pages 1-19, April.

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