Risk and ambiguity aversion behavior in index-based insurance uptake decisions: Experimental evidence from Ethiopia

Temesgen Keno Belissa, Robert Lensink and Marcel van Asseldonk

Journal of Economic Behavior & Organization, 2020, vol. 180, issue C, 718-730

Abstract: Index-based insurance (IBI) is an innovative pro-poor climate risk management strategy that suffers from low uptake. Evidence on the role of behavioral impediments in adoption of IBI is scant. We conducted lab-in-the-field experiments with 1139 smallholders out of whom 596 have adopted IBI in Ethiopia to elicit their risk and ambiguity aversion behavior, and examine whether risk and/or ambiguity aversion can explain actual IBI uptake decisions. Our study suggests that an increase in risk-aversion increases uptake, but an increase in ambiguity-aversion lowers uptake of IBI. We also find evidence that an increase in risk aversion speeds-up the uptake of IBI, while an increase in ambiguity aversion delays the adoption of IBI.

Keywords: Index-based insurance; Risk aversion; Ambiguity aversion; Lab-in-the-field experiment (search for similar items in EconPapers)
JEL-codes: D92 G22 O44 Q41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:180:y:2020:i:c:p:718-730

DOI: 10.1016/j.jebo.2019.07.018

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