Insurance, Credit, and Technology Adoption : Field Experimental Evidence from Malawi

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 education.

Bibliographic Details

Main Authors:	Giné, Xavier, Yang, Dean
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	World Bank, Washington, DC 2007-12
Subjects:	ACCESS TO CAPITAL, ACCESS TO CREDIT, ACCESS TO INFORMATION, ADVERTISEMENTS, AGRICULTURAL ACTIVITIES, AGRICULTURAL HOUSEHOLD MODEL, AGRICULTURAL LABOR, AGRICULTURAL PRODUCTION, AGRICULTURAL PRODUCTIVITY, AVERAGE YIELDS, BANK POLICY, BANKS, BEHAVIORAL ECONOMICS, BORROWER, BORROWING, COLLATERAL, COMMODITY, COMMODITY RISK MANAGEMENT, CONSUMER, CONSUMER RESEARCH, CONSUMERS, CONSUMPTION SMOOTHING, CORN, COTTON, CREDIT CONSTRAINTS, CREDIT MARKET, CREDIT MARKET FAILURE, CREDIT MARKETS, CREDIT PROGRAM, CROP, CROP LOSS, CROP PRODUCTION, CROP VARIETIES, CROPPING, CROPS, CULTIVATION, CULTIVATION PRACTICES, DEBT, DEFAULT COSTS, DEMAND FOR CREDIT, DEPOSIT, DEVELOPING COUNTRIES, DROUGHT, DUMMY VARIABLE, DUMMY VARIABLES, ECONOMIC ANALYSIS, ECONOMIC DEVELOPMENT, EDUCATION LEVELS, EQUIPMENT, EXPENDITURE, FAIR PRICE, FARM, FARM INCOME, FARMER, FARMERS, FARMING, FARMS, FERTILIZER, FERTILIZER USE, FIELD TRIALS, FINANCIAL CONSTRAINTS, FINANCIAL INNOVATIONS, FINANCIAL MARKET, FINANCIAL MARKETS, FINANCIAL PRODUCTS, FINANCIAL SUPPORT, FUTURE CREDIT, GENDER, GOVERNMENT INTERVENTIONS, GREEN REVOLUTION, GROUNDNUT, GROUNDNUT PRODUCTION, HOLDINGS, HOUSEHOLD INCOME, HOUSEHOLDS, HUMAN CAPITAL, HYBRID SEED, HYBRID SEEDS, INCOME, INCOME TAX, INCOME VARIABILITY, INCOME-GENERATING ACTIVITIES, INCOMES, INFORMATIONAL ASYMMETRIES, INNOVATION, INSURANCE, INSURANCE COMPANIES, INSURANCE COMPANY, INSURANCE CONTRACT, INSURANCE MARKETS, INSURANCE POLICIES, INSURANCE POLICY, INSURANCE PREMIUM, INSURANCE PRODUCT, INTEREST PAYMENT, INTEREST RATE, INTERNATIONAL BANK, INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE, INVESTING, IRA, IRA CONTRIBUTIONS, LABOR DEMAND, LABOR MARKETS, LACK OF ACCESS, LAND OWNERSHIP, LANDHOLDERS, LENDER, LENDERS, LIABILITY, LIGHTING, LIMITED ACCESS, LIQUID WEALTH, LOAN, LOAN AMOUNT, LOAN PRODUCT, LOAN TERMS, LOANS TO FARMERS, MAIZE, MAIZE PRODUCTION, MARKETING, MARKETING EFFORTS, MICROFINANCE, MICROFINANCE INSTITUTIONS, MIDDLE-INCOME FAMILIES, NEGATIVE INCOME SHOCK, NONPAYMENT, PENSION, PENSION INCOME, PEOPLES, PESTICIDE, PLANTING, POLITICAL ECONOMY, POOR FARMER, POSITIVE COEFFICIENTS, PREMIUM PAYMENT, PROBABILITIES, PROBABILITY, PRODUCTIVITY, PUBLIC POLICY, REMITTANCES, REPAYMENT, RESEARCH ASSISTANCE, RETURN, RETURNS, RISK AVERSE BORROWERS, RISK AVERSION, RISK MANAGEMENT, RISK TOLERANCE, RURAL FINANCE, SALE, SAVERS, SAVING INCENTIVES, SEEDS, SMALLHOLDER, SMALLHOLDER FARMERS, SOCIOECONOMIC STATUS, SOURCE OF INCOME, SOURCES OF INCOME, SOWING, STANDARD DEBT CONTRACT, TAKE-UP RATE, TAKE-UP RATES, TAX CODE, TECHNICAL ASSISTANCE, TRADITIONAL SEEDS, VALUABLE, VALUATION, VILLAGES, WAGES, WATER SOURCE, WEALTH EFFECTS, YIELDS, Microdata Set,
Online Access:	http://documents.worldbank.org/curated/en/2007/12/8828562/insurance-credit-technology-adoption-field-experimental-evidence-malawi http://hdl.handle.net/10986/7611
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