Evidence of Demand for Index Insurance: Experimental Games and Commercial Transactions in Ethiopia

Michael Norton, Daniel Osgood, Malgosia Madajewicz, Eric Holthaus, Nicole Peterson, Rahel Diro, Conner Mullally, Tse-Ling Teh and Mengesha Gebremichael

Journal of Development Studies, 2014, vol. 50, issue 5, 630-648

Abstract: We present results of experimental games with smallholder farmers in Tigray, Ethiopia, in 2010, in which participants in the games allocated money across risk management options. One of the options was index insurance that was the same as commercial products sold locally. Participants exhibited clear preferences for insurance contracts with higher frequency payouts and for insurance over other risk management options, including high interest savings. The preference for higher frequency payouts is mirrored in commercial sales of the product, with commercial purchasers paying substantially higher premiums than the minimal, low frequency option available. This combined evidence challenges claims that the very poor universally choose minimal index insurance coverage and supports concerns that demand may outpace supply of responsible insurance products.

Date: 2014
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DOI: 10.1080/00220388.2014.887685

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