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Ambiguity Aversion Decreases the Impact of Partial Insurance: Evidence from African Farmers

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  • Gharad Bryan

Abstract

Indemnifying smallholder farmers against crop loss is thought to play an important role in encouraging the adoption of new technologies and facilitating productivity growth, but to be infeasible due to information problems. Consequently there is interest in developing alternative, partial, insurance products. Examples include rainfall insurance and the limited liability inherent in credit contracts. I argue that although these products may reduce information asymmetry, ambiguity averse farmers struggle to assess whether the contracts reduce risk. This problem is most pronounced when the production technology is ambiguous, as is likely the case for new technologies. I formalize this argument and test the theory using data from two RCTs, conducted in Malawi and Kenya. Comparative statics from the theory are consistent with both sets of data, and I argue that income losses from ambiguity aversion may be substantial.

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  • Gharad Bryan, 2019. "Ambiguity Aversion Decreases the Impact of Partial Insurance: Evidence from African Farmers," Journal of the European Economic Association, European Economic Association, vol. 17(5), pages 1428-1469.
    • Handle: RePEc:oup:jeurec:v:17:y:2019:i:5:p:1428-1469.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvy056
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    Cited by:

    1. Yiting Chen & Songfa Zhong, 2024. "Source Dependence in Effort Provision," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1499-1517, August.
    2. Yingmei Tang & Huifang Cai & Rongmao Liu, 2022. "Will marketing strategies affect farmers’ preferences and willingness to pay for catastrophe insurance? Evidence from a choice experiment in China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(1), pages 1376-1389, January.
    3. Takahashi, Kazushi & Noritomo, Yuma & Ikegami, Munenobu & Jensen, Nathaniel D., 2020. "Understanding pastoralists’ dynamic insurance uptake decisions: Evidence from four-year panel data in Ethiopia," Food Policy, Elsevier, vol. 95(C).
    4. Antoine Billot & Sujoy Mukerji & Jean-Marc Tallon, 2020. "Market Allocations under Ambiguity: A Survey," Revue économique, Presses de Sciences-Po, vol. 71(2), pages 267-282.
    5. Cosmin L. Ilut & Martin Schneider, 2022. "Modeling Uncertainty as Ambiguity: a Review," NBER Working Papers 29915, National Bureau of Economic Research, Inc.
    6. Nagisa Shiiba & Hide-Fumi Yokoo & Voravee Saengavut & Siraprapa Bumrungkit, 2023. "Ambiguity Aversion And Individual Adaptation To Climate Change: Evidence From A Farmer Survey In Northeastern Thailand," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 14(01), pages 1-29, February.
    7. Balasubramanya, Soumya, 2024. "Rationalizing groundwater use in agriculture in South Asia: the role of technology," IAAE 2024 Conference, August 2-7, 2024, New Delhi, India 344327, International Association of Agricultural Economists (IAAE).
    8. Guillemin, François, 2020. "Governance by depositors, bank runs and ambiguity aversion," Research in International Business and Finance, Elsevier, vol. 54(C).
    9. Quentin Stoeffler & Michael Carter & Catherine Guirkinger & Wouter Gelade, 2022. "The Spillover Impact of Index Insurance on Agricultural Investment by Cotton Farmers in Burkina Faso," The World Bank Economic Review, World Bank, vol. 36(1), pages 114-140.
    10. Enrico Biffis & Erik Chavez & Alexis Louaas & Pierre Picard, 2022. "Parametric insurance and technology adoption in developing countries," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 47(1), pages 7-44, March.
    11. Williams Ali & Awudu Abdulai & Renan Goetz & Victor Owusu, 2021. "Risk, ambiguity and willingness to participate in crop insurance programs: Evidence from a field experiment," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(3), pages 679-703, July.
    12. Cecchi, Francesco & Lensink, Robert & Slingerland, Edwin, 2024. "Ambiguity attitudes and demand for weather index insurance with and without a credit bundle: experimental evidence from Kenya," Journal of Behavioral and Experimental Finance, Elsevier, vol. 41(C).
    13. Crentsil, Christian & Gschwandtner, Adelina & Wahhaj, Zaki, 2020. "The effects of risk and ambiguity aversion on technology adoption: Evidence from aquaculture in Ghana," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 46-68.
    14. Norton, Benjamin P. & Hoel, Jessica B. & Michelson, Hope, 2020. "The demand for (fake?) fertilizer: Using an experimental auction to examine the role of beliefs on agricultural input demand in Tanzania," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304444, Agricultural and Applied Economics Association.
    15. Maristella Botticini & Pietro Buri & Massimo Marinacci, 2023. "Presidential Address 2023: The Beauty of Uncertainty: The Rise of Insurance Contracts and Markets in Medieval Europe," Journal of the European Economic Association, European Economic Association, vol. 21(6), pages 2287-2326.
    16. Caceres, Daniela & Valdivia, Melissa & Barron, Manuel, 2024. "Information on Cancer Prevalence and Oncologic Insurance Take-up," MPRA Paper 120274, University Library of Munich, Germany.
    17. Williams Ali & Awudu Abdulai & Ashok K. Mishra, 2020. "Recent Advances in the Analyses of Demand for Agricultural Insurance in Developing and Emerging Countries," Annual Review of Resource Economics, Annual Reviews, vol. 12(1), pages 411-430, October.
    18. Pitthan, Francisco & De Witte, Kristof, 2021. "Puzzles of insurance demand and its biases: A survey on the role of behavioural biases and financial literacy on insurance demand," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    19. Freudenreich, Hanna & Musshoff, Oliver, 2022. "Experience of losses and aversion to uncertainty - experimental evidence from farmers in Mexico," Ecological Economics, Elsevier, vol. 195(C).
    20. Dougherty, John P. & Flatnes, Jon Einar & Gallenstein, Richard A. & Miranda, Mario J. & Sam, Abdoul G., 2020. "Climate change and index insurance demand: Evidence from a framed field experiment in Tanzania," Journal of Economic Behavior & Organization, Elsevier, vol. 175(C), pages 155-184.
    21. Yulian Ding & Jianyu Yu & Yangyang Sun & Rodolfo M. Nayga & Yunyun Liu, 2023. "Gene‐edited or genetically modified food? The impacts of risk and ambiguity on Chinese consumers' willingness to pay," Agricultural Economics, International Association of Agricultural Economists, vol. 54(3), pages 414-428, May.

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