Insuring Well-Being? Buyer's Remorse and Peace of Mind Effects from Insurance

49 Pages Posted: 28 Nov 2017

See all articles by Kibrom Tafere

Kibrom Tafere

World Bank - Development Research Group

Christopher B. Barrett

Cornell University - Charles H. Dyson School of Applied Economics & Management

Erin Lentz

University of Texas at Austin - Lyndon B. Johnson School of Public Affairs

Birhanu Ayana

CGIAR - International Livestock Research Institute (ILRI)

Date Written: November 27, 2017

Abstract

This paper estimates the causal effects of index insurance coverage on subjective well-being among livestock herders in southern Ethiopia. The randomization of incentives to purchase index-based livestock insurance and three rounds of panel data are exploited to separately identify ex ante welfare gains from insurance that reduces risk exposure and ex post buyer's remorse effects that may arise after the resolution of uncertainty. Insurance coverage currently in force generates subjective well-being gains that are significantly higher than the buyer's remorse effect of an insurance that lapsed without paying out. Given the temporal correlation in insurance purchase propensity, failure to control for potential buyer's remorse effects can bias downward estimates of welfare gains from current insurance coverage.

Keywords: Climate Change and Agriculture, Dairies and Dairying

Suggested Citation

Tafere, Kibrom and Barrett, Christopher B. and Lentz, Erin and Ayana, Birhanu, Insuring Well-Being? Buyer's Remorse and Peace of Mind Effects from Insurance (November 27, 2017). World Bank Policy Research Working Paper No. 8256, Available at SSRN: https://ssrn.com/abstract=3078349

Kibrom Tafere (Contact Author)

World Bank - Development Research Group ( email )

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

Christopher B. Barrett

Cornell University - Charles H. Dyson School of Applied Economics & Management ( email )

315 Warren Hall
Ithaca, NY 14853-7801
United States
607-255-4489 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://aem.cornell.edu/faculty_sites/cbb2/

Erin Lentz

University of Texas at Austin - Lyndon B. Johnson School of Public Affairs ( email )

2300 Red River St., Stop E2700
PO Box Y
Austin, TX 78713
United States

Birhanu Ayana

CGIAR - International Livestock Research Institute (ILRI) ( email )

P.O. Box 5689
Ababa
Kenya

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