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Insuring well-being ? buyer's remorse and peace of mind effects from insurance

Author

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  • Hirfrfot,Kibrom Tafere
  • Barrett,Christopher B.
  • Lentz,Erin
  • Ayana,Birhanu T.

Abstract

This paper estimates the causal effects of index insurance coverage on subjective well-being among livestock herders in southern Ethiopia. The randomization of incentives to purchase index-based livestock insurance and three rounds of panel data are exploited to separately identify ex ante welfare gains from insurance that reduces risk exposure and ex post buyer's remorse effects that may arise after the resolution of uncertainty. Insurance coverage currently in force generates subjective well-being gains that are significantly higher than the buyer's remorse effect of an insurance that lapsed without paying out. Given the temporal correlation in insurance purchase propensity, failure to control for potential buyer's remorse effects can bias downward estimates of welfare gains from current insurance coverage.

Suggested Citation

  • Hirfrfot,Kibrom Tafere & Barrett,Christopher B. & Lentz,Erin & Ayana,Birhanu T., 2017. "Insuring well-being ? buyer's remorse and peace of mind effects from insurance," Policy Research Working Paper Series 8256, The World Bank.
    • Handle: RePEc:wbk:wbrwps:8256
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    Cited by:

    1. Ali, Williams & Abdulai, Awudu & Goetz, Renan & Owusu, Victor, 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. 63(03), January.
    2. Sakketa, Tekalign G. & Kornher, Lukas, 2021. "Unintended Consequences or a Glimmer of Hope? Comparative Impact Analysis of Cash Transfers and Index Insurance on Pastoralists’ Labor Allocation Decisions," 2021 Conference, August 17-31, 2021, Virtual 315113, International Association of Agricultural Economists.
    3. Glenn W. Harrison & Jia Min Ng, 2019. "Behavioral insurance and economic theory: A literature review," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(2), pages 133-182, July.
    4. Yonas Alem & Jonathan Colmer, 2022. "Blame it on the rain: Rainfall variability, consumption smoothing, and subjective well‐being in rural Ethiopia," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(3), pages 905-920, May.

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