| By: |
Yang, Dean;
Gine, Xavier |
| Abstract: |
The adoption of new agricultural technologies may be discouraged because of
their inherent riskiness. This study implemented a randomized field experiment
to ask whether the provision of insurance against a major source of production
risk induces farmers to take out loans to invest in a new crop variety. The
study sample was composed of roughly 800 maize and groundnut farmers in
Malawi, where by far the dominant source of production risk is the level of
rainfall. We randomly selected half of the farmers to be offered credit to
purchase high-yielding hybrid maize and improved groundnut seeds for planting
in the November 2006 crop season. The other half of the farmers were offered a
similar credit package but were also required to purchase (at actuarially fair
rates) a weather insurance policy that partially or fully forgave the loan in
the event of poor rainfall. Surprisingly, take up was lower by 13 percentage
points among farmers offered insurance with the loan. Take-up was 33.0 percent
for farmers who were offered the uninsured loan. There is suggestive evidence
that the reduced take-up of the insured loan was due to the high cognitive
cost of evaluating the insurance: insured loan take-up was positively
correlated with farmer education levels. By contrast, the take-up of the
uninsured loan was uncorrelated with farmer e ducation. |
| Keywords: |
,Access to Finance,Debt Markets,Hazard Risk Management,Crops & Crop Management Systems |
| Date: |
2007–12–01 |
| URL: |
http://d.repec.org/n?u=RePEc:wbk:wbrwps:4425&r=mfd |