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Crowding-in or crowding-out: The effect of humanitarian aid on households’ investments in climate adaptation

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  • Fluhrer, Svenja

Abstract

Forecast-based Financing (FbF) is a new humanitarian instrument that helps vulnerable households to cope with climate shocks. While economists have posited that ex-post disaster aid decreases households’ investment in climate adaptation strategies such as agriculture insurance uptake, the effect of FbF on households’ adaptation investments is unknown. In this paper, I use a Randomized Controlled Trial approach to examine the effect of FbF on the demand for agriculture insurance among pastoralist households in Mongolia. I find that receiving FbF during an extreme weather event increases the uptake of livestock insurance for the following year, indicating that FbF crowds-in households’ investments in climate adaptation. I suggest increased risk awareness through which FbF affects insurance demand.

Suggested Citation

  • Fluhrer, Svenja, 2023. "Crowding-in or crowding-out: The effect of humanitarian aid on households’ investments in climate adaptation," MPRA Paper 117975, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:117975
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    More about this item

    Keywords

    Adaptation; forecast-based financing; index-based agricultural insurance; livestock; charity hazard;
    All these keywords.

    JEL classification:

    • H84 - Public Economics - - Miscellaneous Issues - - - Disaster Aid
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture

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