After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection

Sarah Janzen and Michael Carter

No 19702, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: To cope with shocks, poor households with inadequate access to financial markets can sell assets to smooth consumption and, or reduce consumption to protect assets. Both coping strategies can be economically costly and contribute to the transmission of poverty, yet limited evidence exists regarding the effectiveness of insurance to mitigate these costs in risk-prone developing economies. Utilizing data from an RCT in rural Kenya, this paper estimates that on average an innovative microinsurance scheme reduces both forms of costly coping. Threshold econometrics grounded in theory reveal a more complex pattern: (i) wealthier households primarily cope by selling assets, and insurance makes them 96 percentage points less likely to sell assets following a shock; (ii) poorer households cope primarily by cutting food consumption, and insurance reduces by 49 percentage points their reliance on this strategy.

JEL-codes: G22 O12 O16 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-agr, nep-dev and nep-mfd
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Citations: View citations in EconPapers (42)

Published as Sarah A Janzen & Michael R Carter, 2019. "After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection," American Journal of Agricultural Economics, vol 101(3), pages 651-671.

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