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Does bundling crop insurance with certified seeds crowd-in investments? Experimental evidence from Kenya

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  • Bulte, Erwin
  • Cecchi, Francesco
  • Lensink, Robert
  • Marr, Ana
  • van Asseldonk, Marcel

Abstract

We use a randomised experiment in Kenya to analyse how smallholder farmers respond to receiving a free hybrid crop insurance product, conditional on purchasing certified seeds. We find that farmers increase effort—increasing total investments and taking more land in production. In addition to adopting more certified seeds, they also invest more in complementary inputs such as fertilizer and hired-in farm-machinery and non-farm labour. We find limited evidence of a change in farming intensity. For example, there is no evidence of ‘crowding-out’ of effort or inputs on a per-hectare basis, even if the indemnity-based component of the insurance product potentially gives rise to asymmetric information problems (moral hazard). We also document that ex post willingness to pay for the insurance product has increased for the treatment group. This suggests that learning about the benefits of (subsidized) insurance outweighs any anchoring effects on the zero price during the pilot study.

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  • Bulte, Erwin & Cecchi, Francesco & Lensink, Robert & Marr, Ana & van Asseldonk, Marcel, 2020. "Does bundling crop insurance with certified seeds crowd-in investments? Experimental evidence from Kenya," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 744-757.
  • Handle: RePEc:eee:jeborg:v:180:y:2020:i:c:p:744-757
    DOI: 10.1016/j.jebo.2019.07.006
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    3. Jonas R. Jahnert & Hato Schmeiser & Florian Schreiber, 2022. "Pricing strategies in the German term life insurance market: An empirical analysis," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 25(1), pages 19-34, April.
    4. Mitra, Archisman & Bouwer, Roy & Balasubramanya, Soumya & Taron, Avinandan, 2022. "Willingness to pay for bundled agricultural insurance products – results from a discrete choice experiment in Bihar, India," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322159, Agricultural and Applied Economics Association.
    5. Patil, Vikram & Veettil, Prakashan Chellattan & Yashodha, Yashodha, 2021. "Understanding Farmers’ Low Uptake of Crop Insurance in India: A Discrete Choice Experiment Approach," 2021 Conference, August 17-31, 2021, Virtual 315232, International Association of Agricultural Economists.
    6. Chowdhury, Shyamal & Smits, Joeri & Sun, Qigang, 2020. "Contract Structure, Time Preference, and Technology Adoption," IZA Discussion Papers 13590, Institute of Labor Economics (IZA).
    7. Olga Mapanje & Selma Karuaihe & Charles Machethe & Mao Amis, 2023. "Financing Sustainable Agriculture in Sub-Saharan Africa: A Review of the Role of Financial Technologies," Sustainability, MDPI, vol. 15(5), pages 1-20, March.

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    More about this item

    Keywords

    Index and indemnity-based insurance; Subsidized input; Farm management; Input bundling;
    All these keywords.

    JEL classification:

    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General

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