How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment

Shawn Cole, Xavier Gine and James Vickery ()

The Review of Financial Studies, 2017, vol. 30, issue 6, 1935-1970

Abstract: Weather is a key source of income risk, especially in emerging market economies. This paper uses a randomized controlled trial involving Indian farmers to study how an innovative rainfall insurance product affects production decisions. We find that insurance provision induces farmers to invest more in higher-return but rainfall-sensitive cash crops, particularly among educated farmers. This shift in behavior occurs ex ante, when realized monsoon rainfall is still uncertain. Our results suggest that financial innovation can mitigate the real effects of uninsured production risk.

JEL-codes: C93 D13 D14 G22 G32 O16 Q14 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (73)

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Related works:
Working Paper: How does risk management influence production decisions? evidence from a field experiment (2014)
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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