The dual role of insurance in input use: Mitigating risk versus curtailing incentives

Davide Pietrobon

Journal of Development Economics, 2024, vol. 166, issue C

Abstract: Insurance can encourage the use of risk-increasing inputs, but it can also decrease people’s incentives to exert effort when the latter is difficult to monitor. This effort reduction can be associated with a decrease in the use of effort-complementary inputs. I study a model of risk-sharing that allows for both effects of insurance on input use and use the latest ICRISAT panel to structurally estimate it. Median fertilizer use is almost three times higher under no sharing than under full insurance for reasonable levels of risk aversion. A subsidy that halves fertilizer prices increases farmers’ welfare by 37% in consumption-equivalent terms.

Keywords: Insurance; Risk; Private information; Effort; Agriculture; Fertilizer; Complementarity (search for similar items in EconPapers)
JEL-codes: O12 O13 O33 Q16 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304387823001591
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:166:y:2024:i:c:s0304387823001591

DOI: 10.1016/j.jdeveco.2023.103203

Access Statistics for this article

Journal of Development Economics is currently edited by M. R. Rosenzweig

More articles in Journal of Development Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().