Crowding-in or crowding-out: The effect of humanitarian aid on households’ investments in climate adaptation

Svenja Fluhrer

MPRA Paper from University Library of Munich, Germany

Abstract: Forecast-based Financing (FbF) is a new humanitarian instrument that helps vulnerable households to cope with climate shocks. While economists have posited that ex-post disaster aid decreases households’ investment in climate adaptation strategies such as agriculture insurance uptake, the effect of FbF on households’ adaptation investments is unknown. In this paper, I use a Randomized Controlled Trial approach to examine the effect of FbF on the demand for agriculture insurance among pastoralist households in Mongolia. I find that receiving FbF during an extreme weather event increases the uptake of livestock insurance for the following year, indicating that FbF crowds-in households’ investments in climate adaptation. I suggest increased risk awareness through which FbF affects insurance demand.

Keywords: Adaptation; forecast-based financing; index-based agricultural insurance; livestock; charity hazard (search for similar items in EconPapers)
JEL-codes: H84 O1 Q1 (search for similar items in EconPapers)
Date: 2023-04-08
New Economics Papers: this item is included in nep-agr and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:117975

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