IDEAS home Printed from https://ideas.repec.org/p/wop/stanec/97010.html
   My bibliography  Save this paper

Insurance Market Efficiency and Crop Choices in Pakistan

Author

Listed:
  • Takashi Kurosaki
  • Marcel Fafchamps

Abstract

March 1997 This paper tests the efficiency of insurance markets in the Pakistan Punjab by examining how crop choices are affected by the presence of price and yield risk. We estimate reduced-form and structural models of crop choices. Although we cannot reject the hypothesis that village members efficiently share risk among themselves, production choices are shown to depend on risk. Existing risk sharing and self-insurance mechanisms thus imperfectly protect Punjab farmers against village-level shocks. Results also indicate that households respond to consumption and input price risk, thereby suggesting that empirical and theoretical work on risk should avoid putting an exclusive emphasis on yield and output price risk.

Suggested Citation

  • Takashi Kurosaki & Marcel Fafchamps, 1997. "Insurance Market Efficiency and Crop Choices in Pakistan," Working Papers 97010, Stanford University, Department of Economics.
    • Handle: RePEc:wop:stanec:97010
    as

    Download full text from publisher

    File URL: http://www.stanford.edu/~fafchamp/insur.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    2. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    3. Dorosh, Paul & Valdés, Alberto, 1990. "Effects of exchange rate and trade policies on agriculture in Pakistan:," Research reports 84, International Food Policy Research Institute (IFPRI).
    4. Nigel Key & Elisabeth Sadoulet & Alain De Janvry, 2000. "Transactions Costs and Agricultural Household Supply Response," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 245-259.
    5. Fafchamps, Marcel & Udry, Christopher & Czukas, Katherine, 1998. "Drought and saving in West Africa: are livestock a buffer stock?," Journal of Development Economics, Elsevier, vol. 55(2), pages 273-305, April.
    6. Sarah Gavian & Marcel Fafchamps, 1996. "Land Tenure and Allocative Efficiency in Niger," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 460-471.
    7. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Credit Market Constraints, Consumption Smoothing, and the Accumulation of Durable Production Assets in Low-Income Countries: Investment in Bullocks in India," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 223-244, April.
    8. repec:bla:scandj:v:94:y:1992:i:2:p:253-73 is not listed on IDEAS
    9. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
    10. Marcel Fafchamps & John Pender, "undated". "Precautionary Saving Credit Constraints and Investment: Theory and Evidence from Semi-Arid India," Computing in Economics and Finance 1997 37, Society for Computational Economics.
    11. Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July.
    12. Antle, John M & Crissman, Charles C, 1990. "Risk, Efficiency, and the Adoption of Modern Crop Varieties: Evidence from the Philippines," Economic Development and Cultural Change, University of Chicago Press, vol. 38(3), pages 517-537, April.
    13. Takashi Kurosaki, 1996. "Government Interventions, Market Integration, and Price Risk in Pakistan’s Punjab," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 35(2), pages 129-144.
    14. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-1157, December.
    15. Benjamin, Dwayne, 1992. "Household Composition, Labor Markets, and Labor Demand: Testing for Separation in Agricultural Household Models," Econometrica, Econometric Society, vol. 60(2), pages 287-322, March.
    16. Stephen P. Zeldes, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 275-298.
    17. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    18. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-333, March.
    19. Rosenzweig, Mark R & Binswanger, Hans P, 1993. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Economic Journal, Royal Economic Society, vol. 103(416), pages 56-78, January.
    20. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    21. Christopher Udry, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 495-526.
    22. Faiz Mohammad, 1985. "Farm Prices and the Green Revolution. Some Reflections on the Performance of Private Agricultural Markets in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 24(2), pages 103-123.
    23. Feder, Gershon & Just, Richard E & Zilberman, David, 1985. "Adoption of Agricultural Innovations in Developing Countries: A Survey," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 255-298, January.
    24. Marcel Fafchamps, 1992. "Cash Crop Production, Food Price Volatility, and Rural Market Integration in the Third World," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(1), pages 90-99.
    25. Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665, National Bureau of Economic Research, Inc.
    26. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    27. Marcel Fafchamps & Agnes R. Quisumbing, 1999. "Human Capital, Productivity, and Labor Allocation in Rural Pakistan," Journal of Human Resources, University of Wisconsin Press, vol. 34(2), pages 369-406.
    28. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 901-918, October.
    29. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-956, October.
    30. de Janvry, Alain & Fafchamps, Marcel & Sadoulet, Elisabeth, 1991. "Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained," Economic Journal, Royal Economic Society, vol. 101(409), pages 1400-1417, November.
    31. Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-335, May.
    32. de Janvry, Alain & Fafchamps, M. & Sadoulet, Elisabeth, 1991. "Peasant Household Behavior with Missing Markets: Some Paradoxes Explain," CUDARE Working Papers 198579, University of California, Berkeley, Department of Agricultural and Resource Economics.
    33. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 308-335, December.
    34. Martin Ravallion & Shubham Chaudhuri, 1997. "Risk and Insurance in Village India: Comment," Econometrica, Econometric Society, vol. 65(1), pages 171-184, January.
    35. Fafchamps, Marcel, 1992. "Solidarity Networks in Preindustrial Societies: Rational Peasants with a Moral Economy," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 147-174, October.
    36. Feder, Gershon, 1980. "Farm Size, Risk Aversion and the Adoption of New Technology under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 32(2), pages 263-283, July.
    37. Rosenzweig, Mark R & Stark, Oded, 1989. "Consumption Smoothing, Migration, and Marriage: Evidence from Rural India," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 905-926, August.
    38. Andrew D. Foster & Mark R. Rosenzweig, 2001. "Imperfect Commitment, Altruism, And The Family: Evidence From Transfer Behavior In Low-Income Rural Areas," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 389-407, August.
    39. John M. Antle, 1987. "Econometric Estimation of Producers' Risk Attitudes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(3), pages 509-522.
    40. Israel Finkelshtain & James A. Chalfant, 1991. "Marketed Surplus under Risk: Do Peasants Agree with Sandmo?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 557-567.
    41. Fafchamps, Marcel & Pender, John, 1997. "Precautionary Saving, Credit Constraints, and Irreversible Investment: Theory and Evidence from Semiarid India," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(2), pages 180-194, April.
    42. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, vol. 82(1), pages 15-33, March.
    43. Lindon J. Robison & John R. Brake, 1979. "Application of Portfolio Theory to Farmer and Lender Behavior," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 61(1), pages 158-164.
    44. Marcle Fafchamps, 1999. "Risk sharing and quasi-credit," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(3), pages 257-278.
    45. Alderman, Harold, et al, 1996. "The Returns to Endogenous Human Capital in Pakistan's Rural Wage Labour Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(1), pages 29-55, February.
    46. Deaton, A., 1992. "Saving and Income Smoothing in Cote d'Ivoire," Papers 156, Princeton, Woodrow Wilson School - Development Studies.
    47. Fafchamps, Marcel, 1993. "Sequential Labor Decisions under Uncertainty: An Estimable Household Model of West-African Farmers," Econometrica, Econometric Society, vol. 61(5), pages 1173-1197, September.
    48. Rosenzweig, Mark R, 1988. "Risk, Private Information, and the Family," American Economic Review, American Economic Association, vol. 78(2), pages 245-250, May.
    49. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-976, October.
    50. John M. Antle, 1989. "Nonstructural Risk Attitude Estimation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(3), pages 774-784.
    51. Robert M. Townsend, 1995. "Financial Systems in Northern Thai Villages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 1011-1046.
    Full references (including those not matched with items on IDEAS)

    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. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
    2. Fafchamps, Marcel & Udry, Christopher & Czukas, Katherine, 1998. "Drought and saving in West Africa: are livestock a buffer stock?," Journal of Development Economics, Elsevier, vol. 55(2), pages 273-305, April.
    3. Harold Alderman & Christina H. Paxson, 1994. "Do the Poor Insure? A Synthesis of the Literature on Risk and Consumption in Developing Countries," International Economic Association Series, in: Edmar L. Bacha (ed.), Economics in a Changing World, chapter 3, pages 48-78, Palgrave Macmillan.
    4. Digvijay S. Negi & Christopher B. Barrett, 2024. "Consumption Smoothing, Commodity Markets, and Informal Transfers," Working Papers 116, Ashoka University, Department of Economics.
    5. Gaurav, Sarthak, 2015. "Are Rainfed Agricultural Households Insured? Evidence from Five Villages in Vidarbha, India," World Development, Elsevier, vol. 66(C), pages 719-736.
    6. Dubois, Pierre, 2002. "Consommation, partage de risque et assurance informelle : développements théoriques et tests empiriques récents," L'Actualité Economique, Société Canadienne de Science Economique, vol. 78(1), pages 115-149, Mars.
    7. Somville, Vincent & Vandewalle, Lore, 2023. "Access to banking, savings and consumption smoothing in rural India," Journal of Public Economics, Elsevier, vol. 223(C).
    8. Marcel Fafchamps & Aditya Shrinivas, 2022. "Risk Pooling and Precautionary Saving in Village Economies," NBER Working Papers 30128, National Bureau of Economic Research, Inc.
    9. Marcel Fafchamps, 2002. "Inequality and Risk," WIDER Working Paper Series DP2002-07, World Institute for Development Economic Research (UNU-WIDER).
    10. Morduch, Jonathan, 1999. "Between the State and the Market: Can Informal Insurance Patch the Safety Net?," The World Bank Research Observer, World Bank, vol. 14(2), pages 187-207, August.
    11. repec:eee:labchp:v:3:y:1999:i:pb:p:2859-2939 is not listed on IDEAS
    12. Yang Dean, 2008. "Coping with Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2002," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-45, June.
    13. Hurley, Terrance M., 2010. "A review of agricultural production risk in the developing world," Working Papers 188476, HarvestChoice.
    14. Stefan Dercon & Pramila Krishnan, 2000. "In Sickness and in Health: Risk Sharing within Households in Rural Ethiopia," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 688-727, August.

    More about this item

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

    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:wop:stanec:97010. 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: Thomas Krichel (email available below). General contact details of provider: https://edirc.repec.org/data/destaus.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.