Original source
Productivity, credit, risk, and the demand for weather index insurance in smallholder agriculture in Ethiopia (2013)
journal article · Agricultural Economics · 44, 399–417
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C 2013 International Association of Agricultural Economists
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Ambiguity Aversion in Novel Financial Products
"More subtle explanations explored in recent years include the idea of "ambiguity aversion" (Bryan, 2010), under which households do not perfectly understand the distribution from which the relevant probabilities are drawn, and because they have a dislike of taking on contracts with uncertain properties their demand is limited."
Asset Wealth and Cash Liquidity Decoupling
"The second stage in the quantity of fertilizer purchased indicates positive influence of land cultivated and agricultural capital, as one would expect. However, it indicates a negative influence of the number of big animals, which is a proxy for wealth, and this seems counterintuitive."
Basis Risk as Adoption Barrier
"A product with high basis risk simply fails to achieve the desired goal of providing protection against correlated risks to consumption, and hence is not demanded for perfectly good reasons."
Cash Timing and Liquidity Mismatch in Insurance Demand
"Second, the various delays in implementation implied that when the product was actually marketed, many farmers might have already bought the fertilizer they intended to use on cash, and hence they might have already incurred the investment, hence not needing insurance for an amount already spent... Third, the timing of the marketing and insurance sales did not pay attention to the availability of cash."
Clarke Rational Basis Risk Rejection
"Clarke (2011)... suggests that in the presence of basis risk it is possible that households end up without payouts in the worst state of the world and yet still must pay premiums; hence highly risk-averse agents may dislike the product."
Extension Intermediary Information Distortion
"In particular the information conveyed to the farmers was not direct, but through Ministry of Agriculture officials, 'model farmers,' and local extension agents. It is not clear whether the information about the nature of the insurance and interlinked credit and insurance contracts was transmitted clearly to all farmers."
Factor Market Allocative Disequilibrium
"For purchased inputs, the average marginal product is 4.5, which is far above the 'market' value of 1. This implies that inputs are used at levels much below their optimal values."
Increasing Scale Economies in Smallholder Agriculture
"The F-test for the hypothesis that the sum of the coefficients on the land, inputs, labor, and capital variables is equal to 1 is rejected, and the sum of these coefficients is larger than 1, suggesting increasing economies of scale."
Cooperative Interlinked Credit Guarantee Failure
"These supply-side problems were particularly severe in the interlinked arm, where the contract required the local CUs to guarantee the nonweather-related part of the loan, a risk which the CUS refused to accept."
Irrigation-Fertilizer Input Substitution
"Negative significance is exhibited by the average area irrigated, suggesting that irrigation maybe a substitute for the application of fertilizer..."
Land Fragmentation Micro-Climate Risk Diversification
"Of the several other variables introduced, the significant ones include... the number of parcels in the cultivated land (+)..."
Negative Serial Autocorrelation Shock Belief
"The negative result on the shock in the previous year would be explained if households expect weather shocks to be negatively serially autocorrelated."
Palliative Insurance Demand Pattern
"High fertilizer use (indicating a lower marginal product of cash inputs) is a strong determinant of insurance uptake, the sum insured, and the amount of own cash that farmers put into buying insurance. This suggests that the product is likely to provide protection primarily to those who were already using inputs at high levels, rather than enabling a 'transformative' increase in input use among those who had not previously used them."
Parastatal Input Procurement Lead-Time Friction
"More than 70% of the households reported that fertilizer is often supplied late and around 40% of the households reported that supplies were inadequate."
Peril Mismatch in Index Insurance Design
"...while the hypothesis was that the main risk faced by households in the nonrandomly selected kebeles was rainfall deficit, it turned out that in only two thirds of the villages where the study was implemented, the main risk faced was rainfall deficit."
Meteorological Data Incompleteness and Reinsurance Underwriting Bottleneck
"Subsequently, the number of study kebeles had to be further restricted to 49, as the available historical record of rainfall for 10 of the 17 stations was not complete enough to allow the construction of rainfall indexes that would be acceptable by NISCO's partner reinsurance company."
Risk Rationing in Agricultural Credit Markets
"In short many farmers seem to be risk rationed in the terminology of Boucher et al. (2008). This risk arises because the incentive constraints against morally hazardous behavior require the lender to leave substantial risk on the borrower, and if a sufficient component of that risk is outside the control of the borrower, then profitable loan contracts may be refused by borrowers."
Self-Insurance Wealth Substitution
"Among economic variables the per capita income is negatively correlated with uptake, indicating perhaps that wealthier households do not need WII."
State-Contingent Loan Credit-Financed Premium Demand Shift
"Demand for the interlinked products is higher and less price elastic, and the demand for the interlinked product with the premium financed is even higher."
Stated Versus Actual Demand Disconnect
"The study compares a survey-based estimate of willingness to pay with actual uptake for the weather insurance, finding the stated and actual demand to be almost completely uncorrelated."
Price Discount Voucher Discontinuity Effect
"In reality, those offered a zero subsidy within the study sample had exactly zero uptake, indicating that there is an enormous effect of the vouchers (independent of subsidy amount) on realized demand."