1932

Abstract

Despite the significant risks and uncertainties that farmers in developing and emerging countries face in their production process, efforts at encouraging them to adopt agricultural insurance to mitigate their production risks have mainly yielded little success. This article reviews the recent literature on the demand for agricultural insurance in developing and emerging countries, by presenting the state of uptake, drivers of the demand for it, and the potential welfare gains from it. Our review reveals that while risk aversion is necessary for the demand for agricultural insurance, liquidity constraints, rates of time preference, basis risk, and trust are equally relevant in explaining the demand for insurance in poor countries. An interesting observation is the increasing number of studies that employ randomized control trials to analyze farmers’ uptake of agricultural insurance in developing and emerging countries. Our comprehensive review finds some information gaps in the literature, and we propose some avenues for further research.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-resource-110119-025306
2020-10-06
2024-04-25
Loading full text...

Full text loading...

/deliver/fulltext/resource/12/1/annurev-resource-110119-025306.html?itemId=/content/journals/10.1146/annurev-resource-110119-025306&mimeType=html&fmt=ahah

Literature Cited

  1. Alderman H, Paxson CH. 1994. Do the poor insure? A synthesis of the literature on risk and consumption in developing countries. Economics in a Changing World EL Bacha 44–78 London: Palgrave Macmillan
    [Google Scholar]
  2. Attanasio OP, Pavoni N. 2011. Risk sharing in private information models with asset accumulation: explaining the excess smoothness of consumption. Econometrica 79:41027–68
    [Google Scholar]
  3. Banerjee A, Chandrasekhar AG, Duflo E, Jackson MO 2013. The diffusion of microfinance. Science 341:61441236498
    [Google Scholar]
  4. Banerjee A, Niehaus P, Suri T 2019. Universal basic income in the developing world. Annu. Rev. Econ. 11:959–83
    [Google Scholar]
  5. Barnett BJ, Barrett CB. 2008. Poverty traps and index-based risk transfer products. World Dev 36:1766–85
    [Google Scholar]
  6. Barr A, Genicot G. 2008. Rish sharing, commitment, and information: an experimental analysis. J. Eur. Econ. Assoc. 6:61151–85
    [Google Scholar]
  7. Bates BC, Kundzewick ZW, Wu S, Palutikof JP 2008. Climate change and water Tech. Pap., IPCC Geneva:
  8. Belissa T, Bulte E, Cecchi F, Gangopadhyay S, Lensink R 2019. Liquidity constraints, informal institutions, and the adoption of weather insurance: a randomized controlled trial in Ethiopia. J. Dev. Econ. 140:3269–78
    [Google Scholar]
  9. Berg E, Blake M, Morsink K 2017. Risk sharing and demand for insurance: theory and experimental evidence from Ethiopia CSAE Work. Pap., Cent. Study Afr. Econ Univ. Oxford:
  10. Binswanger-Mkhize HP. 2012. Is there too much about index-based agricultural insurance. ? J. Dev. Stud. 48:2187–200
    [Google Scholar]
  11. Brick K, Visser M. 2015. Risk preferences, technology adoption and insurance uptake: a framed experiment. J. Econ. Behav. Organ. 118:269–78
    [Google Scholar]
  12. Bryan G. 2019. Ambiguity aversion decreases the impact of partial insurance: evidence from African farmers. J. Eur. Econ. Assoc. 17:51428–69
    [Google Scholar]
  13. Cai H, Chen Y, Fang H, Zhou L-A 2015. The effect of microinsurance on economic activities: evidence from a randomized field experiment. Rev. Econ. Stat. 97:2287–300
    [Google Scholar]
  14. Cai J. 2016. The impact of insurance provision on household production and financial decisions. Am. Econ. J. Econ. Policy 8:244–88
    [Google Scholar]
  15. Cai J, de Janvry A, Sadoulet E 2015. Social networks and the decision to insure. Am. Econ. J. Appl. Econ. 7:281–108
    [Google Scholar]
  16. Carter MR, Galarza F, Boucher S 2007. Underwriting area-based yield insurance to crowd-in credit supply and demand. Savings Dev 31:3335–62
    [Google Scholar]
  17. Casaburi L, Willis J. 2018. Time versus state in insurance: experimental evidence from contract farming in Kenya. Am. Econ. Rev. 108:123778–813
    [Google Scholar]
  18. Ceballos F, Kramer B, Robles M 2019. The feasibility of picture-based insurance (PBI): smartphone pictures for affordable crop insurance. Dev. Eng. 4:1100042
    [Google Scholar]
  19. Clarke DJ. 2016. A theory of rational demand for index insurance. Am. Econ. J. Microecon. 8:1283–306
    [Google Scholar]
  20. Cole BS, Giné X, Tobacman J, Topalova P, Townsend R, Vickery J 2013. Barriers to household risk management: evidence from India. Am. Econ. J. Appl. Econ. 5:104–35
    [Google Scholar]
  21. Cole SA, Xiong W. 2017. Agricultural insurance and economic development. Annu. Rev. Econ. 9:235–62
    [Google Scholar]
  22. Connor RA. 1996. More than risk reduction: the investment appeal of insurance. J. Econ. Psychol. 17:39–54
    [Google Scholar]
  23. de Brauw A, Eozenou P 2014. Measuring risk attitudes among Mozambican farmers. J. Dev. Econ. 111:61–74
    [Google Scholar]
  24. Dercon S. 2004. Growth and shocks: evidence from rural Ethiopia. J. Dev. Econ. 74:309–29
    [Google Scholar]
  25. Dercon S, Christiaensen L. 2011. Consumption risk, technology adoption and poverty traps: evidence from Ethiopia. J. Dev. Econ. 96:2159–73
    [Google Scholar]
  26. Dercon S, Hill RV, Clarke D, Outes-Leon I, Taffesse AS 2014. Offering rainfall insurance to informal insurance groups: evidence from a field experiment in Ethiopia. J. Dev. Econ. 106:132–43
    [Google Scholar]
  27. Doherty NA, Schlesinger H. 1990. Rational insurance purchasing: consideration of contract nonperformance. Q. J. Econ. 105:1243–53
    [Google Scholar]
  28. Elabed G, Bellemare MF, Carter MR, Guirkinger C 2013. Managing basis risk with multiscale index insurance. Agric. Econ. 44:4/5419–31
    [Google Scholar]
  29. Elabed G, Carter MR. 2015. Compound-risk aversion, ambiguity and willingness to pay for microinsurance. J. Econ. Behav. Organ. 118:10150–66
    [Google Scholar]
  30. Ellsberg D. 1961. Risk, ambiguity and the savage axioms. Q. J. Econ. 75:4643–69
    [Google Scholar]
  31. Fafchamps M. 1992. Solidarity networks in preindustrial societies: rational peasants with a moral economy. Econ. Dev. Cult. Change 41:1147–74
    [Google Scholar]
  32. Fafchamps M, Gubert F. 2007. The formation of risk sharing networks. J. Dev. Econ. 83:2326–50
    [Google Scholar]
  33. FAO (Food Agric. Organ.) 2013. Climate-Smart Agriculture Sourcebook Rome: FAO
  34. Flatnes JE, Carter MR. 2015. Fail-safe index insurance without the cost: a satellite based conditional audit approach Work. Pap., Univ Calif., Davis:
  35. Freudenreich H, Mußhoff O. 2018. Insurance for technology adoption: an experimental evaluation of schemes and subsidies with maize farmers in Mexico. J. Agric. Econ. 69:196–120
    [Google Scholar]
  36. Garrido A, Zilberman D. 2008. Revisiting the demand for agricultural insurance: the case of Spain. Agric. Finance Rev. 68:143–66
    [Google Scholar]
  37. Gebrekidan T, Guo Y, Bi S, Wang J, Zhang C, Wang J 2019. Effect of index-based livestock insurance on herd offtake: evidence from the Borena zone of southern Ethiopia. Climate Risk Manag 23:67–77
    [Google Scholar]
  38. Giné X, Townsend R, Vickery J 2008. Patterns of rainfall insurance participation in rural India. World Bank Econ. Rev. 22:3539–66
    [Google Scholar]
  39. Guan K, Berry JA, Zhang Y, Joiner J 2016. Improving the monitoring of crop productivity using spaceborne solar-induced fluorescence. Glob. Change Biol. 22:716–26
    [Google Scholar]
  40. Hess U, Hazell P. 2016. Innovations and emerging trends in agricultural insurance Rep., GIZ Bonn, Ger:.
  41. Hill RV, Hoddinott J, Kumar N 2013. Adoption of weather-index insurance: learning from willingness to pay among a panel of households in rural Ethiopia. Agric. Econ. 44:4–5381–84
    [Google Scholar]
  42. Hill RV, Kumar N, Magnan N, Maghija S, de Nikola F et al. 2019. Ex ante and ex post effects of hybrid index insurance in Bangladesh. J. Dev. Econ. 136:1–17
    [Google Scholar]
  43. Hill RV, Robles M, Ceballos F 2016. Demand for simple weather insurance product in India: theory and evidence. Am. J. Agric. Dev. 98:41250–70
    [Google Scholar]
  44. Holden S. 2019. Economics of farm input subsidies in Africa. Annu. Rev. Resour. Econ. 11:501–22
    [Google Scholar]
  45. Iturrioz R. 2009. Agricultural insurance Primer Ser. Insur. 12, Int. Bank Reconstr. Dev./World Bank Washington, DC: http://documents.worldbank.org/curated/en/985551468150558970/pdf/625120NWP0Agri00Box0361486B0PUBLIC0.pdf
  46. Jensen ND, Barrett CB, Mude AG 2016. Index insurance quality and basis risk: evidence from northern Kenya. Am. J. Agric. Econ. 98:51450–69
    [Google Scholar]
  47. Jensen ND, Barrett CB, Mude AG 2017. Cash transfers and index insurance: a comparative impact analysis from northern Kenya. J. Dev. Econ. 129:14–28
    [Google Scholar]
  48. Jensen ND, Mude AG, Barrett CB 2018. How basis risk and spatiotemporal adverse selection influence demand for index insurance: evidence from Northern Kenya. Food Policy 74:1172–92
    [Google Scholar]
  49. Kahneman D, Tversky A. 1979. Prospect theory: an analysis of decision under risk. Econometrica 47:2263–91
    [Google Scholar]
  50. Karlan D, Osei RD, Osei-Akoto I, Udry C 2014. Agricultural decisions after relaxing credit and risk constraints. Q. J. Econ. 129:2597–652
    [Google Scholar]
  51. Kim HS, Brorsen BW, Anderson KB 2010. Profit margin hedging. Am. J. Agric. Econ. 92:638–53
    [Google Scholar]
  52. Krychevska L, Shynkarenko I, Shynkarenko R 2017. Agricultural insurance in China: history, development and success factors Rep., Agroinsur. Int Kiev/Tblisi: http://agroinsurance.com/wp-content/uploads/2017/04/Agricultural-insurance-in-China-Agroinsurance-International.pdf
  53. Kumar S, Tiwari S, Singh SK 2016. Face recognition of cattle: Can it be done. ? PNAS India Sect. A Phys. Sci. 86:2137–48
    [Google Scholar]
  54. [Google Scholar]
  55. Mahul O, Stutley CJ. 2010. Government Support to Agricultural Insurance: Challenges and Options for Developing Countries Washington, DC: World Bank
  56. Miranda MJ, Farrin K. 2012. Index insurance for developing countries. Appl. Econ. Perspect. Policy 34:3391–427
    [Google Scholar]
  57. Miranda MJ, Mulangu FM. 2016. Index insurance for agricultural transformation in Africa Rep., Afr. Cent. Econ. Transform. Accra, Ghana:
  58. Mobarak MA, Rosenzweig MR. 2013. Informal risk sharing, index insurance and risk taking in developing countries. Am. Econ. Rev. 103:3375–80
    [Google Scholar]
  59. Patt A, Peterson N, Carter M, Velez M, Hess U, Suarez P 2009. Making index insurance attractive to farmers. Mitig. Adapt. Strateg. Glob. Change 14:8737–53
    [Google Scholar]
  60. Rampini AA, Viswanathan S. 2010. Collateral, risk management and the distribution of debt capacity. J. Finance 65:62293–322
    [Google Scholar]
  61. Rosenzweig MR, Binswanger HP. 1993. Wealth, weather risk and the composition of agricultural investments. Econ. J. 103:56–78
    [Google Scholar]
  62. Sheahan M, Barrett CB. 2017. Ten striking facts about agricultural input use in sub-Saharan Africa. Food Policy 67:12–25
    [Google Scholar]
  63. Smith VH, Watts M. 2019. Index based agricultural insurance in developing countries: feasibility, scalability and sustainability. Gates Open Res 3: https://doi.org/10.21955/gatesopenres.1114971.1
    [Crossref] [Google Scholar]
  64. Swiss Re Inst 2013. World insurance in 2013: steering towards recovery Rep. sigma 03/2014, Swiss Re. Inst Zurich, Switz.:
  65. Swiss Re Inst 2016. Agricultural insurance in Latin America: taking root Rep., Swiss Re Inst. Zurich, Switz.:
  66. Tadesse MA, Alfnes F, Erenstein O, Holden ST 2017. Demand for a labor-based drought insurance scheme in Ethiopia: a stated choice experiment approach. Agric. Econ. 48:501–11
    [Google Scholar]
  67. Takahashi K, Barrett CB, Ikegami M 2018. Does index insuance crowd out informal risk sharing? Evidence from rural Ethiopia. Am. J. Agric. Econ. 101:3672–91
    [Google Scholar]
  68. Vargas R, Angelino H. 2012. A field experiment on the impact of weather shocks and insurance on risky investment. Exp. Econ. 15:341–71
    [Google Scholar]
  69. von Neumann J, Morgenstern O 1944. Theory of Games and Economic Behavior Princeton, NJ: Princeton Univ. Press
  70. World Bank 2010. Agricultural Insurance in Latin America: Developing the Market New York: World Bank
  71. Xiao Y, Yao W. 2019. Double trigger agricultural insurance products with weather index and yield index. China Agric. Econ. Rev. 11:2299–316
    [Google Scholar]
  72. Ye T, Hu W, Barnett BJ, Wang J, Gao Y 2019. Area yield index insurance or farm yield crop insurance? Chinese perspectives on farmers’ welfare and government subsidy effectiveness. J. Agric. Econ. 71:1144–64
    [Google Scholar]
/content/journals/10.1146/annurev-resource-110119-025306
Loading
/content/journals/10.1146/annurev-resource-110119-025306
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error