Utility, Risk and Demand for Incomplete Insurance: Lab Experiments with Guatemalan Co-Operatives

Craig McIntosh, Felix Povel and Elisabeth Sadoulet ()

The Economic Journal, 2019, vol. 129, issue 622, 2581-2607

Abstract: We play a series of incentivised laboratory games with risk-exposed co-operativised Guatemalan coffee farmers to understand the demand for index-based rainfall insurance. We estimate an explicit utility curve for every player and hence predict expected utility demand under counterfactual scenarios. Using these estimates, we provide a precise money-metric decomposition of the extent to which the low observed demand for index insurance is driven by expected utility theory, or by behavioural issues arising from a prospect-style utility structure. Our results suggest that consumers value probabilistic insurance using a prospect-style utility function that is concave both in probabilities and in income.

Date: 2019
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Citations: View citations in EconPapers (8)

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Working Paper: Utility, Risk, and Demand for Incomplete Insurance: Lab Experiments with Guatemalan Cooperatives (2015)
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