Does bundling crop insurance with certified seeds crowd-in investments? Experimental evidence from Kenya

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Abstract

We use a randomised experiment in Kenya to analyse how smallholder farmers respond to receiving a free hybrid crop insurance product, conditional on purchasing certified seeds. We find that farmers increase effort—increasing total investments and taking more land in production. In addition to adopting more certified seeds, they also invest more in complementary inputs such as fertilizer and hired-in farm-machinery and non-farm labour. We find limited evidence of a change in farming intensity. For example, there is no evidence of ‘crowding-out’ of effort or inputs on a per-hectare basis, even if the indemnity-based component of the insurance product potentially gives rise to asymmetric information problems (moral hazard). We also document that ex post willingness to pay for the insurance product has increased for the treatment group. This suggests that learning about the benefits of (subsidized) insurance outweighs any anchoring effects on the zero price during the pilot study.

LanguageEnglish
JournalJournal of Economic Behavior and Organization
DOIs
Publication statusE-pub ahead of print - 29 Jul 2019

Fingerprint

Insurance
Crop insurance
Bundling
Kenya
Labor
Fertilizer
Farming
Moral hazard
Randomized experiments
Farm
Purchasing
Smallholder farmers
Machinery
Asymmetric information
Anchoring effect
Crowding out
Farmers
Willingness-to-pay

Keywords

  • Farm management
  • Index and indemnity-based insurance
  • Input bundling
  • Subsidized input

Cite this

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title = "Does bundling crop insurance with certified seeds crowd-in investments? Experimental evidence from Kenya",
abstract = "We use a randomised experiment in Kenya to analyse how smallholder farmers respond to receiving a free hybrid crop insurance product, conditional on purchasing certified seeds. We find that farmers increase effort—increasing total investments and taking more land in production. In addition to adopting more certified seeds, they also invest more in complementary inputs such as fertilizer and hired-in farm-machinery and non-farm labour. We find limited evidence of a change in farming intensity. For example, there is no evidence of ‘crowding-out’ of effort or inputs on a per-hectare basis, even if the indemnity-based component of the insurance product potentially gives rise to asymmetric information problems (moral hazard). We also document that ex post willingness to pay for the insurance product has increased for the treatment group. This suggests that learning about the benefits of (subsidized) insurance outweighs any anchoring effects on the zero price during the pilot study.",
keywords = "Farm management, Index and indemnity-based insurance, Input bundling, Subsidized input",
author = "E. Bulte and Francesco Cecchi and Robert Lensink and Ana Marr and {van Asseldonk}, Marcel",
year = "2019",
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AU - Bulte, E.

AU - Cecchi, Francesco

AU - Lensink, Robert

AU - Marr, Ana

AU - van Asseldonk, Marcel

PY - 2019/7/29

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N2 - We use a randomised experiment in Kenya to analyse how smallholder farmers respond to receiving a free hybrid crop insurance product, conditional on purchasing certified seeds. We find that farmers increase effort—increasing total investments and taking more land in production. In addition to adopting more certified seeds, they also invest more in complementary inputs such as fertilizer and hired-in farm-machinery and non-farm labour. We find limited evidence of a change in farming intensity. For example, there is no evidence of ‘crowding-out’ of effort or inputs on a per-hectare basis, even if the indemnity-based component of the insurance product potentially gives rise to asymmetric information problems (moral hazard). We also document that ex post willingness to pay for the insurance product has increased for the treatment group. This suggests that learning about the benefits of (subsidized) insurance outweighs any anchoring effects on the zero price during the pilot study.

AB - We use a randomised experiment in Kenya to analyse how smallholder farmers respond to receiving a free hybrid crop insurance product, conditional on purchasing certified seeds. We find that farmers increase effort—increasing total investments and taking more land in production. In addition to adopting more certified seeds, they also invest more in complementary inputs such as fertilizer and hired-in farm-machinery and non-farm labour. We find limited evidence of a change in farming intensity. For example, there is no evidence of ‘crowding-out’ of effort or inputs on a per-hectare basis, even if the indemnity-based component of the insurance product potentially gives rise to asymmetric information problems (moral hazard). We also document that ex post willingness to pay for the insurance product has increased for the treatment group. This suggests that learning about the benefits of (subsidized) insurance outweighs any anchoring effects on the zero price during the pilot study.

KW - Farm management

KW - Index and indemnity-based insurance

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KW - Subsidized input

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