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The Dual Role of Insurance in Input Use: Mitigating Risk Versus Curtailing Incentives

Pietrobon, Davide LU (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.
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author
organization
publishing date
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}},
}