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Patterns of Rainfall Insurance Participation in Rural India

46 Pages Posted: 13 Sep 2007  

Xavier Giné

World Bank - Development Research Group (DECRG)

Robert M. Townsend

MIT - Department of Economics

James I. Vickery

Federal Reserve Bank of New York

Multiple version iconThere are 3 versions of this paper

Date Written: September 2007

Abstract

This paper describes the contract design and institutional features of an innovative rainfall insurance policy offered to smallholder farmers in rural India and presents preliminary evidence on the determinants of insurance participation. Insurance take-up is found to be decreasing in basis risk between insurance payouts and income fluctuations, higher among wealthy households, and lower among households that are credit constrained. These results match predictions of a simple neoclassical model appended with borrowing constraints. Other patterns are less consistent with the benchmark model. Namely, participation in village networks and measures of familiarity with the insurance vendor are strongly correlated with insurance take-up decisions, and risk averse households are found to be less, not more, likely to purchase insurance. We present evidence suggesting that these results reflect uncertainty about the product itself, given households' limited experience with it.

Keywords: rainfall insurance, household finance, risk sharing, India

JEL Classification: O10, O16, G2, G22

Suggested Citation

Giné, Xavier and Townsend, Robert M. and Vickery, James I., Patterns of Rainfall Insurance Participation in Rural India (September 2007). FRB of New York Staff Report No. 302. Available at SSRN: https://ssrn.com/abstract=1014165 or http://dx.doi.org/10.2139/ssrn.1014165

Xavier Gine

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

HOME PAGE: https://sites.google.com/site/decrgxaviergine/

Robert M. Townsend

MIT - Department of Economics ( email )

Bldg. E52-252c
50 Memorial Drive
Cambridge, MA 02142
United States
617-452-3722 (Phone)
617-253-1330 (Fax)

James Ian Vickery (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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