IDEAS home Printed from https://ideas.repec.org/p/fpr/ifprid/974.html
   My bibliography  Save this paper

An experiment on the impact of weather shocks and insurance on risky investment

Author

Listed:
  • Hill, Ruth Vargas
  • Viceisza, Angelino

Abstract

We conduct a framed field experiment in rural Ethiopia to test the seminal hypothesis that insurance provision induces farmers to take greater, yet profitable, risks. Farmers participated in a game protocol in which they were asked to make a simple decision: whether to purchase fertilizer, and if so, how many bags. The return to fertilizer was dependent on a stochastic weather draw made in each round of the game protocol. In later rounds of the game protocol, a random selection of farmers made this decision in the presence of a stylized weather-index insurance contract. Insurance was found to have some positive effect on fertilizer purchases. Purchases were also found to depend on the realization of the weather in the previous round. We explore the mechanisms of this relationship and find that it may be the result of both changes in wealth weather brings about and changes in perceptions of the costs and benefits of fertilizer purchases.

Suggested Citation

  • Hill, Ruth Vargas & Viceisza, Angelino, 2010. "An experiment on the impact of weather shocks and insurance on risky investment," IFPRI discussion papers 974, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:fpr:ifprid:974
    as

    Download full text from publisher

    File URL: https://www.ifpri.org/cdmref/p15738coll2/id/1325/filename/1326.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Matthew Rabin & Dimitri Vayanos, 2010. "The Gambler's and Hot-Hand Fallacies: Theory and Applications," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(2), pages 730-778.
    2. Youngjae Lim & Robert Townsend, 1998. "General Equilibrium Models of Financial Systems: Theory and Measurement in Village Economies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 59-118, January.
    3. Dercon, Stefan & Christiaensen, Luc, 2011. "Consumption risk, technology adoption and poverty traps: Evidence from Ethiopia," Journal of Development Economics, Elsevier, vol. 96(2), pages 159-173, November.
    4. Barrett, Christopher B., 1996. "On price risk and the inverse farm size-productivity relationship," Journal of Development Economics, Elsevier, vol. 51(2), pages 193-215, December.
    5. Dercon, Stefan & Christiaensen, Luc, 2011. "Consumption risk, technology adoption and poverty traps: Evidence from Ethiopia," Journal of Development Economics, Elsevier, vol. 96(2), pages 159-173, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Gine, Xavier & Menand, Lev & Townsend, Robert & Vickery, James, 2010. "Microinsurance : a case study of the Indian rainfall index insurance market," Policy Research Working Paper Series 5459, The World Bank.
    3. Hill, Ruth Vargas & Robles, Miguel, 2011. "Flexible insurance for heterogeneous farmers: Results from a small-scale pilot in Ethiopia," IFPRI discussion papers 1092, International Food Policy Research Institute (IFPRI).
    4. de Brauw, Alan & Eozenou, Patrick, 2014. "Measuring risk attitudes among Mozambican farmers," Journal of Development Economics, Elsevier, vol. 111(C), pages 61-74.
    5. Shawn Cole & Xavier Giné & James Vickery, 2017. "How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment," The Review of Financial Studies, Society for Financial Studies, vol. 30(6), pages 1935-1970.
    6. Marenya, Paswel Phiri & Smith, Vincent H. & Nkonya, Ephraim M., 2012. "Subsistence farmer preferences for alternative incentive policies to encourage the adoption of conservation agriculture in Malawi: A choice elicitation approach," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124010, Agricultural and Applied Economics Association.
    7. Sarah A Janzen & Michael R Carter, 2019. "After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(3), pages 651-671.
    8. Shukri Ahmed & Craig McIntosh & Alexandros Sarris, 2020. "The Impact of Commercial Rainfall Index Insurance: Experimental Evidence from Ethiopia," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(4), pages 1154-1176, August.
    9. Czura, Kristina & Dequiedt, Vianney, 2015. "Willingness-to-pay for microinsurance and flexibility: Evidence from an agricultural investment lab-in-the-field experiment in Senegal," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112993, Verein für Socialpolitik / German Economic Association.
    10. Antoine Leblois & Philippe Quirion, 2013. "Agricultural insurances based on meteorological indices: realizations, methods and research challenges," Post-Print hal-00656778, HAL.
    11. Janzen, Sarah A. & Carter, Michael R., 2013. "The Impact of Microinsurance on Consumption Smoothing and Asset Protection: Evidence from a Drought in Kenya," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151141, Agricultural and Applied Economics Association.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ruth Hill & Angelino Viceisza, 2012. "A field experiment on the impact of weather shocks and insurance on risky investment," Experimental Economics, Springer;Economic Science Association, vol. 15(2), pages 341-371, June.
    2. Hurley, Terrance M., 2010. "A review of agricultural production risk in the developing world," Working Papers 188476, HarvestChoice.
    3. Hill, Ruth Vargas & Robles, Miguel, 2011. "Flexible insurance for heterogeneous farmers: Results from a small-scale pilot in Ethiopia," IFPRI discussion papers 1092, International Food Policy Research Institute (IFPRI).
    4. Shawn Cole & Xavier Giné & James Vickery, 2017. "How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment," The Review of Financial Studies, Society for Financial Studies, vol. 30(6), pages 1935-1970.
    5. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    6. Antoine Leblois & Philippe Quirion, 2013. "Agricultural insurances based on meteorological indices: realizations, methods and research challenges," Post-Print hal-00656778, HAL.
    7. Marco Caliendo & Sabine Kopeinig, 2008. "Some Practical Guidance For The Implementation Of Propensity Score Matching," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 31-72, February.
    8. Dercon, Stefan & Christiaensen, Luc, 2011. "Consumption risk, technology adoption and poverty traps: Evidence from Ethiopia," Journal of Development Economics, Elsevier, vol. 96(2), pages 159-173, November.
    9. Dercon, Stefan & Christiaensen, Luc, 2011. "Consumption risk, technology adoption and poverty traps: Evidence from Ethiopia," Journal of Development Economics, Elsevier, vol. 96(2), pages 159-173, November.

    More about this item

    Keywords

    Fertilizer; field experiment; hypothesis; input response; Insurance;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fpr:ifprid:974. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/ifprius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.