The goal of this project was to study how access to an innovative retail risk management instrument influences "real" production decisions. A randomized control trial approach was employed in which rainfall insurance was randomized across small agricultural firms in a semi-arid region of India in which rainfall variability during the monsoon is the primary source of production and income risk. At the start of the monsoon, the treatment group consisting of half of the farmers in the sample was provided with rainfall insurance policies, mitigating their exposure to rainfall risk. The control group was instead promised a fixed cash payment equal to an estimate of the actuarial value of the insurance policy, to be paid at the same time as insurance payouts. This compensation was offered to ensure that differences in behavior between the insurance and control group would be do to the state-contingent nature of the insurance, rather than any wealth effects arising from the expected value of the insurance. After the growing season, a follow-up survey was conducted of each household which collected demographic data, information on livestock, financial assets (including savings, loans, and insurance), agricultural investments and production decisions during the monsoon, and attitudes towards and expectations of weather and insurance payout, and risk-coping behavior.
The project also involved a follow-up experiment which sought to understand how consumers value these complex insurance products and to provide insight into their long-run commercial viability. An interviewer would visit each household after the first experiment and offer the chance to participate in a game in which they would have the opportunity to purchase rainfall insurance policies at a discounted price. The subject would have a chance to study the details of several insurance policies, and then record, in rupees, their willingness to pay for it. Only one of these policies would in fact be available for sale, and would be revealed only after the subject had stated willingness to pay for all policies. If the subject's bid were greater than or equal to the offer price, the subject would purchase the policy. If the subject's bid was less than the offer price, no insurance policy would be sold.