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Simrin Makhija - One of the best experts on this subject based on the ideXlab platform.
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drought tolerant rice weather index Insurance and comprehensive risk management for smallholders evidence from a multi year field experiment in india
Australian Journal of Agricultural and Resource Economics, 2020Co-Authors: Patrick S Ward, Simrin Makhija, David J SpielmanAbstract:In rainfed Production systems throughout India, agricultural activities are dependent upon the summer monsoon, and any aberration in monsoon rainfall patterns can have severe consequences for rice Production. There is considerable policy interest in designing programs to lower small-scale farmers' exposure to these types of risk given the regularity with which adverse monsoon events occur. This paper introduces a field experiment conducted with two risk management options in the state of Odisha: a drought-tolerant rice cultivar; and a weather index Insurance Product designed to complement the performance of the cultivar. Uptake rates for the cultivar itself and for the joint Product are compared across two years alongside an analysis of factors that predict uptake. Results indicate high levels of demand for both the Products, albeit with a significant degree of price sensitivity. But this sensitivity is agnostic to the nature of price reductions, suggesting that public investments that lower the costs of risk management may be sufficient to encourage broad uptake, without necessarily relying upon distortionary subsidies as is so often done. Sustained demand between years one and two is primarily explained where individuals were indemnified in year one and had a large number of peers also purchasing the Product.
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new modalities for managing drought risk in rainfed agriculture evidence from a discrete choice experiment in odisha india
World Development, 2018Co-Authors: Patrick S Ward, Simrin MakhijaAbstract:Droughts have historically had large impacts on agricultural Production in rainfed agricultural systems. Scientists and policymakers have proposed various strategies for managing risks, with limited success. In this study we consider two such strategies, specifically drought tolerant rice and weather index Insurance. While neither drought tolerant cultivars nor weather index Insurance Products are perfect solutions for adequately managing drought risk in and of themselves, there is scope to exploit the benefits of each and bundle them into a complementary risk management Product, specifically through proper index calibration and an optimized Insurance design. In this study, we explore preferences for such a complementary risk management Product using discrete choice experiments in Odisha, India. We are able to estimate the added value that farmers perceive in the bundled Product above and beyond the value associated with each of the independent Products. We also show that valuations are very sensitive to the basis risk implied by the Insurance Product, with farmers less enthusiastic about risk management Products that leave significant risks uninsured.
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insuring against droughts evidence on agricultural intensification and index Insurance demand from a randomized evaluation in rural bangladesh
Social Science Research Network, 2017Co-Authors: Ruth Vargas Hill, Simrin Makhija, David J Spielman, Neha Kumar, Nicholas Magnan, Francesca De Nicola, Patrick S WardAbstract:It is widely acknowledged that unmitigated risks provide a disincentive for otherwise optimal investments in modern farm inputs. Index Insurance provides a means for managing risk without the burdens of asymmetric information and high transaction costs that plague traditional indemnity-based crop Insurance programs. Yet many index Insurance programs that have been piloted around the world have met with rather limited success, so the potential for Insurance to foster more intensive agricultural Production has yet to be realized. This study assesses both the demand for and the effectiveness of an innovative index Insurance Product designed to help smallholder farmers in Bangladesh manage risk to crop yields and the increased Production costs associated with drought. Villages were randomized into either an Insurance treatment or a comparison group, and discounts and rebates were randomly allocated across treatment villages to encourage Insurance take-up and to allow for the estimation of the price elasticity of Insurance demand. Among those offered Insurance, we find Insurance demand to be moderately price elastic, with discounts significantly more successful in stimulating demand than rebates. Farmers who are highly risk averse or sensitive to basis risk prefer a rebate to a discount, suggesting that the rebate may partially offset some of the implicit costs associated with Insurance contract nonperformance. Having Insurance yields both ex ante risk management effects and ex post income effects on agricultural input use. The risk management effects lead to increased expenditures on inputs during the aman rice-growing season, including expenditures for risky inputs such as fertilizers, as well as those for irrigation and pesticides. The income effects lead to increased seed expenditures during the boro rice-growing season, which may signal insured farmers’ higher rates of seed replacement, which broadens their access to technological improvements embodied in newer seeds as well as enhancing the genetic purity of cultivated seeds.
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new modalities for managing drought risk in rainfed agriculture evidence from a discrete choice experiment in odisha india
Social Science Research Network, 2016Co-Authors: Patrick S Ward, Simrin MakhijaAbstract:In this paper we explore the potential for a new approach to managing drought risk among rainfed rice producers in Odisha, India. Droughts have historically been a serious constraint to agricultural Production in rainfed agricultural systems, with droughts resulting in significant reductions in both yields and cultivated area, in turn leading to significant impacts on rural livelihoods and food security. Scientists and policy makers have proposed various strategies for managing risks, with limited success. In this study we consider two such strategies, specifically drought-tolerant rice and weather index Insurance. While neither drought-tolerant cultivars nor weather index Insurance Products are perfect solutions for adequately managing drought risk in and of themselves, there is scope to exploit the benefits of each and bundle them into a complementary risk management Product, specifically through proper index calibration and an optimized Insurance design. In this study, we explore preferences for such a complementary risk management Product using discrete choice experiments in Odisha, India. We are able to estimate the added value that farmers perceive in the bundled Product above and beyond the value associated with each of the independent Products. We also show that valuations are sensitive to the basis risk implied by the Insurance Product, with farmers less enthusiastic about risk management Products that leave significant risks uninsured.
Patrick S Ward - One of the best experts on this subject based on the ideXlab platform.
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drought tolerant rice weather index Insurance and comprehensive risk management for smallholders evidence from a multi year field experiment in india
Australian Journal of Agricultural and Resource Economics, 2020Co-Authors: Patrick S Ward, Simrin Makhija, David J SpielmanAbstract:In rainfed Production systems throughout India, agricultural activities are dependent upon the summer monsoon, and any aberration in monsoon rainfall patterns can have severe consequences for rice Production. There is considerable policy interest in designing programs to lower small-scale farmers' exposure to these types of risk given the regularity with which adverse monsoon events occur. This paper introduces a field experiment conducted with two risk management options in the state of Odisha: a drought-tolerant rice cultivar; and a weather index Insurance Product designed to complement the performance of the cultivar. Uptake rates for the cultivar itself and for the joint Product are compared across two years alongside an analysis of factors that predict uptake. Results indicate high levels of demand for both the Products, albeit with a significant degree of price sensitivity. But this sensitivity is agnostic to the nature of price reductions, suggesting that public investments that lower the costs of risk management may be sufficient to encourage broad uptake, without necessarily relying upon distortionary subsidies as is so often done. Sustained demand between years one and two is primarily explained where individuals were indemnified in year one and had a large number of peers also purchasing the Product.
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new modalities for managing drought risk in rainfed agriculture evidence from a discrete choice experiment in odisha india
World Development, 2018Co-Authors: Patrick S Ward, Simrin MakhijaAbstract:Droughts have historically had large impacts on agricultural Production in rainfed agricultural systems. Scientists and policymakers have proposed various strategies for managing risks, with limited success. In this study we consider two such strategies, specifically drought tolerant rice and weather index Insurance. While neither drought tolerant cultivars nor weather index Insurance Products are perfect solutions for adequately managing drought risk in and of themselves, there is scope to exploit the benefits of each and bundle them into a complementary risk management Product, specifically through proper index calibration and an optimized Insurance design. In this study, we explore preferences for such a complementary risk management Product using discrete choice experiments in Odisha, India. We are able to estimate the added value that farmers perceive in the bundled Product above and beyond the value associated with each of the independent Products. We also show that valuations are very sensitive to the basis risk implied by the Insurance Product, with farmers less enthusiastic about risk management Products that leave significant risks uninsured.
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insuring against droughts evidence on agricultural intensification and index Insurance demand from a randomized evaluation in rural bangladesh
Social Science Research Network, 2017Co-Authors: Ruth Vargas Hill, Simrin Makhija, David J Spielman, Neha Kumar, Nicholas Magnan, Francesca De Nicola, Patrick S WardAbstract:It is widely acknowledged that unmitigated risks provide a disincentive for otherwise optimal investments in modern farm inputs. Index Insurance provides a means for managing risk without the burdens of asymmetric information and high transaction costs that plague traditional indemnity-based crop Insurance programs. Yet many index Insurance programs that have been piloted around the world have met with rather limited success, so the potential for Insurance to foster more intensive agricultural Production has yet to be realized. This study assesses both the demand for and the effectiveness of an innovative index Insurance Product designed to help smallholder farmers in Bangladesh manage risk to crop yields and the increased Production costs associated with drought. Villages were randomized into either an Insurance treatment or a comparison group, and discounts and rebates were randomly allocated across treatment villages to encourage Insurance take-up and to allow for the estimation of the price elasticity of Insurance demand. Among those offered Insurance, we find Insurance demand to be moderately price elastic, with discounts significantly more successful in stimulating demand than rebates. Farmers who are highly risk averse or sensitive to basis risk prefer a rebate to a discount, suggesting that the rebate may partially offset some of the implicit costs associated with Insurance contract nonperformance. Having Insurance yields both ex ante risk management effects and ex post income effects on agricultural input use. The risk management effects lead to increased expenditures on inputs during the aman rice-growing season, including expenditures for risky inputs such as fertilizers, as well as those for irrigation and pesticides. The income effects lead to increased seed expenditures during the boro rice-growing season, which may signal insured farmers’ higher rates of seed replacement, which broadens their access to technological improvements embodied in newer seeds as well as enhancing the genetic purity of cultivated seeds.
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new modalities for managing drought risk in rainfed agriculture evidence from a discrete choice experiment in odisha india
Social Science Research Network, 2016Co-Authors: Patrick S Ward, Simrin MakhijaAbstract:In this paper we explore the potential for a new approach to managing drought risk among rainfed rice producers in Odisha, India. Droughts have historically been a serious constraint to agricultural Production in rainfed agricultural systems, with droughts resulting in significant reductions in both yields and cultivated area, in turn leading to significant impacts on rural livelihoods and food security. Scientists and policy makers have proposed various strategies for managing risks, with limited success. In this study we consider two such strategies, specifically drought-tolerant rice and weather index Insurance. While neither drought-tolerant cultivars nor weather index Insurance Products are perfect solutions for adequately managing drought risk in and of themselves, there is scope to exploit the benefits of each and bundle them into a complementary risk management Product, specifically through proper index calibration and an optimized Insurance design. In this study, we explore preferences for such a complementary risk management Product using discrete choice experiments in Odisha, India. We are able to estimate the added value that farmers perceive in the bundled Product above and beyond the value associated with each of the independent Products. We also show that valuations are sensitive to the basis risk implied by the Insurance Product, with farmers less enthusiastic about risk management Products that leave significant risks uninsured.
James Vickery - One of the best experts on this subject based on the ideXlab platform.
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how does risk management influence Production decisions evidence from a field experiment
Social Science Research Network, 2014Co-Authors: Shawn Cole, Xavier Gine, James VickeryAbstract:Weather is a key source of income risk, particularly in emerging market economies. This paper uses a randomized controlled trial involving a sample of Indian farmers to study how an innovative rainfall Insurance Product affects Production decisions. We find that Insurance provision induces farmers — particularly educated farmers — to shift Production toward higher-return but higher-risk cash crops. Our results support the view that financial innovation can mitigate the real effects of uninsured Production risk. Addressing the puzzle of low adoption, we show that payouts improve trust in the Product and that farmers shield payouts from claims by relatives.
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how does risk management influence Production decisions evidence from a field experiment
Research Papers in Economics, 2013Co-Authors: Shawn Cole, Xavier Gine, James VickeryAbstract:Weather is a key source of income risk, especially in emerging market economies. This paper uses a randomized controlled trial involving Indian farmers to study how an innovative rainfall Insurance Product affects Production decisions. The authors find that Insurance provision induces farmers to invest more in higher-return but rainfall-sensitive cash crops, particularly among educated farmers. This shift in behavior occurs ex ante, when realized monsoon rainfall is still uncertain. The results suggest that financial innovation can mitigate the real effects of uninsured Production risk.
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barriers to household risk management evidence from india
Research Papers in Economics, 2010Co-Authors: Shawn Cole, Xavier Gine, Jeremy Tobacman, Petia Topalova, Robert M Townsend, James VickeryAbstract:Why do many households remain exposed to large exogenous sources of non-systematic income risk? This paper uses a series of randomized field experiments in rural India to test the importance of price and non-price factors in the adoption of an innovative rainfall Insurance Product. The analysis finds that demand is significantly price-elastic, but that even if Insurance were offered with payout ratios similar to US, widespread coverage would not be achieved. The paper identifies key non-price frictions that limit demand: liquidity constraints, particularly among poor households, lack of trust, and limited salience. The authors suggest potential improvements in contract design to mitigate these frictions.
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barriers to household risk management evidence from india
American Economic Journal: Applied Economics, 2010Co-Authors: Shawn Cole, Xavier Gine, Jeremy Tobacman, Petia Topalova, Robert M Townsend, James VickeryAbstract:Why do many households remain exposed to large exogenous sources of nonsystematic income risk? We use a series of randomized field experiments in rural India to test the importance of price and non-price factors in the adoption of an innovative rainfall Insurance Product. Demand is significantly price sensitive, but widespread take-up would not be achieved even if the Product offered a payout ratio comparable to US Insurance contracts. The authors present evidence suggesting that lack of trust, liquidity constraints, and limited salience are significant non-price frictions that constrain demand. The authors suggest possible contract design improvements to mitigate these frictions.
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barriers to household risk management evidence from india
Staff Reports, 2009Co-Authors: Shawn Cole, Xavier Gine, Jeremy Tobacman, Petia Topalova, Robert M Townsend, James VickeryAbstract:Financial engineering offers the potential to significantly reduce the consumption fluctuations faced by individuals, households, and firms. Yet much of this potential remains unfulfilled. This paper studies the adoption of an innovative rainfall Insurance Product designed to compensate low-income Indian farmers in the event of insufficient rainfall during the primary monsoon season. We first document relatively low adoption of this new risk management Product: Only 5-10 percent of households purchase the Insurance, even though they overwhelmingly cite rainfall variability as their most significant source of risk. We then conduct a series of randomized field experiments to test theories of why Product adoption is so low. Insurance purchase is sensitive to price, with an estimated extensive price elasticity of demand ranging between -.66 and -0.88. Credit constraints, identified through the provision of random liquidity shocks, are a key barrier to participation, a result also consistent with household self-reports. Several experiments find that trust plays an important role in the decision to purchase Insurance. We find mixed evidence that subtle psychological manipulations affect purchases and no evidence that modest attempts at financial education change households' decisions to participate. Based on our experimental results, we suggest preliminary lessons for improving the design of household risk management contracts.
Jack Willis - One of the best experts on this subject based on the ideXlab platform.
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time versus state in Insurance experimental evidence from contract farming in kenya
The American Economic Review, 2018Co-Authors: Lorenzo Casaburi, Jack WillisAbstract:The gains from Insurance arise from the transfer of income across states. Yet, by requiring that the premium be paid upfront, standard Insurance Products also transfer income across time. We show that this intertemporal transfer can help explain low Insurance demand, especially among the poor, and in a randomized control trial in Kenya we test a crop Insurance Product which removes it. The Product is interlinked with a contract farming scheme: as with other inputs, the buyer of the crop offers the Insurance and deducts the premium from farmer revenues at harvest time. The take-up rate is 72%, compared to 5% for the standard upfront contract, and take-up is highest among poorer farmers. Additional experiments and outcomes indicate that liquidity constraints, present bias, and counterparty risk are all important constraints on the demand for standard Insurance. Finally, evidence from a natural experiment in the United States, exploiting a change in the timing of the premium payment for Federal Crop Insurance, sho s that the transfer across time also affects Insurance adoption in developed countries.
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time vs state in Insurance experimental evidence from contract farming in kenya
Research Papers in Economics, 2018Co-Authors: Lorenzo Casaburi, Jack WillisAbstract:The gains from Insurance arise from the transfer of income across states. Yet, by requiring that the premium be paid upfront, standard Insurance Products also transfer income across time. We show that this intertemporal transfer can help explain low Insurance demand, especially among the poor, and in a randomized control trial in Kenya we test a crop Insurance Product which removes it. The Product is interlinked with a contract farming scheme: as with other inputs, the buyer of the crop offers the Insurance and deducts the premium from farmer revenues at harvest time. The take-up rate for pay-at-harvest Insurance is 72%, compared to 5% for the standard pay-upfront contract, and the difference is largest among poorer farmers. Additional experiments and outcomes provide evidence on the role of liquidity constraints, present bias, and counterparty risk, and find that enabling farmers to commit to pay the premium just one month later increases demand by 21 percentage points.
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time vs state in Insurance experimental evidence from contract farming in kenya
Social Science Research Network, 2016Co-Authors: Lorenzo Casaburi, Jack WillisAbstract:The gains from Insurance arise from the transfer of income across states. Yet, by requiring that the premium be paid upfront, standard Insurance Products also transfer income across time. We show that this intertemporal transfer can help explain low Insurance demand, especially among the poor, and in a randomized control trial in Kenya we test a crop Insurance Product which removes it. The Product is interlinked with a contract farming scheme: as with other inputs, the buyer of the crop offers the Insurance and deducts the premium from farmer revenues at harvest time. The take-up rate is 72%, compared to 5% for the standard upfront contract, and take-up is highest among poorer farmers. Additional experiments and outcomes indicate that liquidity constraints, present bias, and counterparty risk are all important constraints on the demand for standard Insurance. Finally, evidence from a natural experiment in the United States, exploiting a change in the timing of the premium payment for Federal Crop Insurance, shows that the transfer across time also affects Insurance adoption in developed countries.
Lorenzo Casaburi - One of the best experts on this subject based on the ideXlab platform.
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time versus state in Insurance experimental evidence from contract farming in kenya
The American Economic Review, 2018Co-Authors: Lorenzo Casaburi, Jack WillisAbstract:The gains from Insurance arise from the transfer of income across states. Yet, by requiring that the premium be paid upfront, standard Insurance Products also transfer income across time. We show that this intertemporal transfer can help explain low Insurance demand, especially among the poor, and in a randomized control trial in Kenya we test a crop Insurance Product which removes it. The Product is interlinked with a contract farming scheme: as with other inputs, the buyer of the crop offers the Insurance and deducts the premium from farmer revenues at harvest time. The take-up rate is 72%, compared to 5% for the standard upfront contract, and take-up is highest among poorer farmers. Additional experiments and outcomes indicate that liquidity constraints, present bias, and counterparty risk are all important constraints on the demand for standard Insurance. Finally, evidence from a natural experiment in the United States, exploiting a change in the timing of the premium payment for Federal Crop Insurance, sho s that the transfer across time also affects Insurance adoption in developed countries.
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time vs state in Insurance experimental evidence from contract farming in kenya
Research Papers in Economics, 2018Co-Authors: Lorenzo Casaburi, Jack WillisAbstract:The gains from Insurance arise from the transfer of income across states. Yet, by requiring that the premium be paid upfront, standard Insurance Products also transfer income across time. We show that this intertemporal transfer can help explain low Insurance demand, especially among the poor, and in a randomized control trial in Kenya we test a crop Insurance Product which removes it. The Product is interlinked with a contract farming scheme: as with other inputs, the buyer of the crop offers the Insurance and deducts the premium from farmer revenues at harvest time. The take-up rate for pay-at-harvest Insurance is 72%, compared to 5% for the standard pay-upfront contract, and the difference is largest among poorer farmers. Additional experiments and outcomes provide evidence on the role of liquidity constraints, present bias, and counterparty risk, and find that enabling farmers to commit to pay the premium just one month later increases demand by 21 percentage points.
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time vs state in Insurance experimental evidence from contract farming in kenya
Social Science Research Network, 2016Co-Authors: Lorenzo Casaburi, Jack WillisAbstract:The gains from Insurance arise from the transfer of income across states. Yet, by requiring that the premium be paid upfront, standard Insurance Products also transfer income across time. We show that this intertemporal transfer can help explain low Insurance demand, especially among the poor, and in a randomized control trial in Kenya we test a crop Insurance Product which removes it. The Product is interlinked with a contract farming scheme: as with other inputs, the buyer of the crop offers the Insurance and deducts the premium from farmer revenues at harvest time. The take-up rate is 72%, compared to 5% for the standard upfront contract, and take-up is highest among poorer farmers. Additional experiments and outcomes indicate that liquidity constraints, present bias, and counterparty risk are all important constraints on the demand for standard Insurance. Finally, evidence from a natural experiment in the United States, exploiting a change in the timing of the premium payment for Federal Crop Insurance, shows that the transfer across time also affects Insurance adoption in developed countries.