How does risk management influence production decisions? evidence from a field experiment

Shawn Cole, Xavier Gine and James Vickery ()

No 692, Staff Reports from Federal Reserve Bank of New York

Abstract: 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.

Keywords: risk management; financial constraints (search for similar items in EconPapers)
JEL-codes: G22 G32 (search for similar items in EconPapers)
Date: 2014-09-01
New Economics Papers: this item is included in nep-agr, nep-exp, nep-mfd and nep-rmg
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment (2017)
Working Paper: How Does Risk Management Influence Production Decisions? Evidence From a Field Experiment (2013)
Working Paper: How does risk management influence production decisions? evidence from a field experiment (2013)
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