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Experimental Economics

, Volume 15, Issue 2, pp 341–371 | Cite as

A field experiment on the impact of weather shocks and insurance on risky investment

  • Ruth Vargas Hill
  • Angelino ViceiszaEmail author
Open Access
Article

Abstract

We conduct a framed field experiment in rural Ethiopia to test the seminal hypothesis that insurance provision induces farmers to take greater, yet profitable, risks. Farmers participated in a game protocol in which they were asked to make a simple decision: whether or not to purchase fertilizer and if so, how many bags. The return to fertilizer was dependent on a stochastic weather draw made in each round of the game. In later rounds a random selection of farmers made this decision in the presence of a stylized weather-index insurance contract. Insurance was found to have some positive effect on fertilizer purchases. Purchases were also found to depend on the realization of the weather in the previous round. We explore the mechanisms of this relationship and find that it may be the result of both changes in wealth weather brings about, and changes in perceptions of the costs and benefits to fertilizer purchases.

Keywords

Fertilizer purchases Uncertainty Insurance Investment response Field experiment Ethiopia 

JEL Classification

C93 D13 D80 O13 

Supplementary material

10683_2011_9303_MOESM1_ESM.pdf (95 kb)
(PDF 95.4 kB)

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Copyright information

© The Author(s) 2011

Open AccessThis is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.

Authors and Affiliations

  1. 1.International Food Policy Research Institute (IFPRI)WashingtonUSA

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