Tag
basis_risk
5 findings
DevelopmentBasis Risk Demand InelasticityUnsubsidized insurance take-up is low (below 15%), but demand increases significantly to 60.2% when price subsidies reach 75%, demonstrating that spatial basis risk severely dampens demand at actuarially fair prices.Observational StudyDevelopmentBasis Risk as Adoption Barrier36 out of 120 Kebeles (30%) were excluded because dominant risks were non-drought perils (frost and flooding) lacking indices, and another 35 Kebeles were dropped due to incomplete historical station rainfall records required for reinsurance pricing.Expert TheoryDevelopmentBasis Risk Valuation SensitivityAssigning an insurance contract to a distant rainfall station reduced mean willingness to pay by 29.45 Rupees (p < 0.01), cutting baseline policy valuation (68.4 Rupees) roughly in half.RCTBehaviour & psychologyClarke Rational Basis Risk RejectionRisk aversion is negatively correlated with stated willingness to pay (p < 0.05) and shows no positive effect on actual uptake (marginal effect = -0.00285, p > 0.10), confirming theoretical models where basis risk reverses standard expected utility predictions.Expert TheoryFinance & microfinanceIndex Basis Risk SensitivityAssigning an insurance policy to a distant weather station (introducing substantial basis risk) reduced farmer willingness-to-pay by Rs. 29.45 (p < 0.01), effectively halving consumer valuation from the baseline average bid of Rs. 68.40 despite identical actuarial expected payouts.RCT