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Investment, Insurance and Weather Shocks: Evidence from a Lab Experiment in Cambodia

Chiara Falco (), Douch Kong (), Valentina Rotondi () and Valeria Spelta ()

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: The paper studies the relationships between investment and insurance under risk and ambiguity. It makes use of a lab experiment to show that under ambiguity poor farmers experience a substitution effect between in- vestment and insurance. Moreover, although having the possibility to purchase an insurance increases, overall, the investment in profitable but risky inputs, this effect is heterogeneous across wealth and uncertainty status. Subsidies positively affect insurance purchase, negatively affect investment in risky inputs and reduce the substitution effect experienced by poor farmers. Finally, the paper shows that under ambiguity people rely on heuristic tools.

Keywords: Uncertainty; Insurance; Investment Response; Rural Development; Climate Change (search for similar items in EconPapers)
JEL-codes: D13 C91 D80 O13 (search for similar items in EconPapers)
Date: 2016-07-30
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