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How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment

2013; Linguagem: Inglês

10.1596/1813-9450-6546

1813-9450

Shawn Cole, Xavier Giné, James Vickery,

Microfinance and Financial Inclusion

No AccessPolicy Research Working Papers15 Nov 2013How Does Risk Management Influence Production Decisions? Evidence from a Field ExperimentAuthors/Editors: Shawn Cole, Xavier Giné, and James VickeryShawn Cole, Xavier Giné, and James Vickeryhttps://doi.org/10.1596/1813-9450-6546SectionsAboutPDF (0.8 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract: Weather is a key source of income risk for many firms and households, particularly in emerging market economies. This paper uses a randomized controlled trial approach to study how an innovative risk management instrument for hedging rainfall risk affects production decisions among a sample of Indian agricultural firms. The analysis finds that the provision of insurance induces farmers to shift production toward higher-return but higher-risk cash crops, particularly among more-educated farmers. The results support the view that financial innovation may help mitigate the real effects of uninsured production risk. In a second experiment, the study elicits willingness to pay for insurance policies that differ in their contract terms, using the Becker-DeGroot-Marshak mechanism. Willingness-to-pay is increasing in the actuarial value of the insurance, but substantially less than one-for-one, suggesting that farmers' valuations are inconsistent with a fully rational benchmark. Previous bookNext book FiguresreferencesRecommendeddetailsCited byThe Impact of Agricultural Insurance on Planting Structure Adjustment—An Empirical Study from Inner Mongolia Autonomous Region, ChinaAgriculture, Vol.14, No.125 December 2023Exploring the role of financial inclusion in poverty reduction: An empirical studyWorld Development Sustainability, Vol.3Who Do You Trust? 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