The Dual Role of Insurance in Input Use: Mitigating Risk Versus Curtailing Incentives
(2024) In Journal of Development Economics 166.- Abstract
- Insurance can encourage the use of risk-increasing inputs, but it can also decrease people's incentives to exert effort when the latter is difficult to monitor. This effort reduction can be associated with a decrease in the use of effort-complementary inputs. I study a model of risk-sharing that allows for both effects of insurance on input use and use the latest ICRISAT panel to structurally estimate it. Median fertilizer use is almost three times higher under no sharing than under full insurance for reasonable levels of risk aversion. A subsidy that halves fertilizer prices increases farmers’ welfare by 37% in consumption-equivalent terms.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/0f4b3f35-fcea-4619-9ce4-f79ae0199e33
- author
- Pietrobon, Davide LU
- organization
- publishing date
- 2024
- type
- Contribution to journal
- publication status
- published
- subject
- in
- Journal of Development Economics
- volume
- 166
- article number
- 103203
- publisher
- Elsevier
- external identifiers
-
- scopus:85174896471
- ISSN
- 0304-3878
- DOI
- 10.1016/j.jdeveco.2023.103203
- language
- English
- LU publication?
- yes
- id
- 0f4b3f35-fcea-4619-9ce4-f79ae0199e33
- date added to LUP
- 2023-10-18 16:12:35
- date last changed
- 2024-01-09 15:45:31
@article{0f4b3f35-fcea-4619-9ce4-f79ae0199e33, abstract = {{Insurance can encourage the use of risk-increasing inputs, but it can also decrease people's incentives to exert effort when the latter is difficult to monitor. This effort reduction can be associated with a decrease in the use of effort-complementary inputs. I study a model of risk-sharing that allows for both effects of insurance on input use and use the latest ICRISAT panel to structurally estimate it. Median fertilizer use is almost three times higher under no sharing than under full insurance for reasonable levels of risk aversion. A subsidy that halves fertilizer prices increases farmers’ welfare by 37% in consumption-equivalent terms.}}, author = {{Pietrobon, Davide}}, issn = {{0304-3878}}, language = {{eng}}, publisher = {{Elsevier}}, series = {{Journal of Development Economics}}, title = {{The Dual Role of Insurance in Input Use: Mitigating Risk Versus Curtailing Incentives}}, url = {{http://dx.doi.org/10.1016/j.jdeveco.2023.103203}}, doi = {{10.1016/j.jdeveco.2023.103203}}, volume = {{166}}, year = {{2024}}, }