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

79 Pages Posted: 20 Apr 2016

See all articles by Shawn Allen Cole

Shawn Allen Cole

Harvard Business School

Xavier Giné

World Bank - Development Research Group (DECRG)

James I. Vickery

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2013

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. The authors 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. The results suggest that financial innovation can mitigate the real effects of uninsured production risk.

Keywords: Labor Policies, Insurance Law, Debt Markets, Non Bank Financial Institutions, Climate Change Economics

Suggested Citation

Cole, Shawn Allen and Gine, Xavier and Vickery, James Ian, How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment (July 1, 2013). World Bank Policy Research Working Paper No. 6546, Available at SSRN: https://ssrn.com/abstract=2298484

Shawn Allen Cole (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
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Xavier Gine

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

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

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

James Ian Vickery

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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