Evidence of Demand for Index Insurance: Experimental Games and Commercial Transactions in Ethiopia

Michael Norton, Daniel Osgood*, Malgosia Madajewicz, Eric Holthaus, Nicole Peterson, Rahel Diro, Conner Mullally, Tse Ling Teh, Mengesha Gebremichael

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

20 Citations (Scopus)

Abstract

We present results of experimental games with smallholder farmers in Tigray, Ethiopia, in 2010, in which participants in the games allocated money across risk management options. One of the options was index insurance that was the same as commercial products sold locally. Participants exhibited clear preferences for insurance contracts with higher frequency payouts and for insurance over other risk management options, including high interest savings. The preference for higher frequency payouts is mirrored in commercial sales of the product, with commercial purchasers paying substantially higher premiums than the minimal, low frequency option available. This combined evidence challenges claims that the very poor universally choose minimal index insurance coverage and supports concerns that demand may outpace supply of responsible insurance products. This material is published by permission of the International Research Institute for Climate and Society, operated by Columbia University for the US Department under Contract No. NSF-SES0345840, NSF-SES0957516, AID-0AA-A-1-00011. The US Government retains for itself, and others acting on its behalf, a paid-up, non-exclusive, and irrevocable worldwide license in said article to reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, by or on behalf of the Government.

Original languageEnglish
Pages (from-to)630-648
Number of pages19
JournalJournal of Development Studies
Volume50
Issue number5
DOIs
Publication statusE-pub ahead of print - 20 Feb 2014
Externally publishedYes

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Norton, M., Osgood, D., Madajewicz, M., Holthaus, E., Peterson, N., Diro, R., ... Gebremichael, M. (2014). Evidence of Demand for Index Insurance: Experimental Games and Commercial Transactions in Ethiopia. Journal of Development Studies, 50(5), 630-648. https://doi.org/10.1080/00220388.2014.887685