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Belissa, T.

Liquidity constraints, informal institutions, and the adoption of weather insurance : a randomized controlled Trial in Ethiopia - Amsterdam (Netherlands) : Elsevier, 2019.

Peer review

We report the results of a drought insurance experiment in Ethiopia, and examine whether uptake of index-based insurance is enhanced if we allow farmers to pay after harvest (addressing a liquidity constraint). We also test to what extent uptake can be enhanced by promoting insurance via informal risk-sharing institutions (Iddirs), to reduce trust and information problems. The delayed payment insurance product increases uptake substantially when compared to standard insurance, from 8% to 24%, and leveraging informal institutions results in even greater uptake (43%). We also find suggestive evidence that the delayed premium product is indeed better at targeting the liquidity constrained. However, default rates associated with delayed payments are relatively high and concentrated in a small number of Iddirs - potentially compromising the economic viability of the novel product. We discuss how default rates can be reduced.


Text in English

ISSN: 0304-3878

Standard No.: https://doi.org/10.1016/j.jdeveco.2019.06.006

Subjects--Topical Terms:
Agricultural insurance
Liquidity

Subjects--Geographic Terms:
Ethiopia