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Field
Paper Abstract
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Before
Uninsured risk impedes agricultural production, but traditional indemnity insurance is not a viable option
for smallholder farmers due to market failures. Weather index insurance is often touted as an alternative
risk management tool. Demand for weather index insurance, however, has been weak. One possible rea-
son is basis risk, the mismatch between index insurance payouts and individual outcomes. We estimate
the impact of two interventions on preferred coverage under a real index insurance product, as revealed
through an auction: (a) a reduction in basis risk, and (b) an experiential game that teaches farmers how
index insurance works, with an emphasis on basis risk. We show all farmers demonstrate strong sensitivity
to basis risk. The experiential game modestly increased knowledge, and experiential game participants
indicate higher levels of preferred insurance coverage. Although offering a lower basis risk insurance
product and playing an experiential game both increase preferred coverage in isolation, there is no addi-
tional impact of doing both. We adapt a theoretical model of misattribution bias to demonstrate how
reference-dependent learning with loss aversion could lead to this unexpected result.
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After
Uninsured risk impedes agricultural production, but traditional indemnity insurance is not a viable option for smallholder farmers due to market failures. Weather index insurance is often touted as an alternative risk management tool. Demand for weather index insurance, however, has been weak. One possible reason is basis risk, the mismatch between index insurance payouts and individual outcomes. We estimate the impact of two interventions on preferred coverage under a real index insurance product, as revealed through an auction: (1) a reduction in basis risk, and (2) an experiential game that teaches farmers how index insurance works, with an emphasis on basis risk. We show all farmers demonstrate strong sensitivity to basis risk. The experiential game modestly increased knowledge, and experiential game participants indicate higher levels of preferred insurance coverage. While offering a lower basis risk insurance product and playing an experiential game both increase preferred coverage in isolation, there is no additional impact of doing both. We adapt a theoretical model of misattribution bias to demonstrate how reference-dependent learning with loss aversion could lead to this unexpected result.
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Paper Citation
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Before
@article{doi:10.1111/ajae.12124,
author = {Janzen, Sarah and Magnan, Nicholas and Mullally, Conner and Shin, Soye and Palmer, I. Bailey and Oduol, Judith and Hughes, Karl},
title = {Can Experiential Games and Improved Risk Coverage Raise Demand for Index Insurance? Evidence from Kenya},
journal = {American Journal of Agricultural Economics},
volume = {n/a},
number = {n/a},
pages = {},
keywords = {basis risk, games, index insurance, Kenya, misattribution bias, D81, G22, O13, Q12, Q14, Q16},
doi = {10.1111/ajae.12124},
url = {https://onlinelibrary.wiley.com/doi/abs/10.1111/ajae.12124},
eprint = {https://onlinelibrary.wiley.com/doi/pdf/10.1111/ajae.12124},
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After
Janzen, Sarah, Nicholas Magnan, Conner Mullally, Soye Shin, I. Bailey Palmer, Judith Odoul, and Karl Hughes (2020). American Journal of Agricultural Economics.
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