Center for Global Development
and The Paul H. Nitze School of Advanced International Studies present
a Massachusetts Avenue Development Seminar (MADS)*
Barriers to Household Risk Management: Evidence from India
Featuring
Xavier Giné
World Bank
With discussant
Ruth Vargas Hill
International Food Policy Research Institute
Tuesday, March 24, 2009
12:00pm--1:30pm
Lunch will be served
at
Center for Global Development
1800 Massachusetts Avenue, NW, Third Floor, Washington,DC
Closest Metro: Dupont Circle (Red Line)
Abstract: Financial engineering offers the potential to significantly reduce income fluctuations faced by individuals, households, and firms. Yet, to date, much of this promise remains unrealized. In this paper, we study household participation in an innovative rainfall insurance product offered to low-income rural Indian households. Farmers are exposed to substantial income risk from rainfall variation during the growing season; the insurance contract compensates farmers in case of deficient rainfall. We first document relatively low levels of adoption of risk management: for example, households tend to purchase only one unit of insurance, no matter how large their risk exposure. We then conduct a series of field experiments to test theoretical predictions of why adoption may be low. These experiments demonstrate that price and credit constraints are important determinants of insurance adoption. However, we also find evidence that non-standard factors affect take-up: while an education module is not important, endorsement from a trusted third party is. We find limited evidence that subtle psychological manipulations affect take-up. Based on our experimental results, we draw preliminary conclusions about improving the design of household risk management contracts.
*The Massachusetts Avenue Development Seminar (MADS) series is an effort by the Center for Global Development and The Paul H Nitze School of Advanced International Studies to take advantage of the incredible concentration of great international development scholars in the Metro Washington, DC area. The series seeks to bring together members of this community and improve communication between them.
