Dual-Sided Balanced Insurance Market Stabilization
RCTClinical Trial
Marketing weather insurance solely to landowning cultivators increases equilibrium wage volatility, while marketing insurance solely to wage laborers reduces labor supply during bad weather shocks. Unilateral interventions create distribution trade-offs between employers and workers.
Picture this
Imagine a tug-of-war where giving a power-up to only the farmers pulls wage volatility wildly in one direction, while giving a power-up only to workers pulls it in the opposite direction. Giving matching power-ups to both sides at the same time balances the rope, keeping local pay steady during bad weather while raising overall village wages during bumper harvests.
What the evidence says
Simultaneously marketing rainfall insurance to both cultivators and laborers eliminates excess wage volatility relative to a no-insurance baseline, while increasing average daily wages by 11.7% at median rainfall and by 19.0% at the 80th percentile of rainfall.
- Who was studied
- N = 4,706 landless wage workers and 1,585 cultivator households across 42 rural villages in India.
- How
- Structural simulation of village equilibrium log daily wages combining estimated cultivator labor demand elasticity (0.842) and laborer supply contraction (-0.627) under maximum sample coverage (25.6% cultivators, 31.8% laborers).
What to do
Market weather index insurance contracts simultaneously to both agricultural employer and laborer populations within the same local labor market.
From the source
"The opposing rainfall sensitivity effects from cultivator choices and laborer choices evidently cancel each other out, and wages are no more volatile when both cultivators and laborers are offered insurance, relative to the case of no insurance in the village."
300_400 Wages General Equilibrium NBER Jan2014.pdf