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Why agricultural insurance may slow down agricultural development

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  • Erwin Bulte
  • Robert Lensink

Abstract

How does agricultural insurance affect the modernization of farming in low income countries? We focus on institutional contexts without formal contract enforcement, where smallholders cannot access modern inputs via markets. Instead, farmers can engage in relational contracting with traders to sell their crop and gain access to inputs (as an advance in‐kind payment). Although conventional theory assumes that insurance “crowds in” modern inputs by attenuating investment risk, we demonstrate that insurance reduces the number of farmers receiving modern inputs from traders. Insurance also reduces the quantity of inputs that traders provide to farmers who remain in a relationship. Insurance may impede the uptake of modern inputs when institutions are imperfect.

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  • Erwin Bulte & Robert Lensink, 2023. "Why agricultural insurance may slow down agricultural development," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(4), pages 1197-1220, August.
    • Handle: RePEc:wly:ajagec:v:105:y:2023:i:4:p:1197-1220
    DOI: 10.1111/ajae.12353
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    Cited by:

    1. Roumasset, James, 2024. "Lexicographic Ordering and Loss Aversion among Low-Income Farmers," Journal of Economic Behavior & Organization, Elsevier, vol. 217(C), pages 483-492.

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