Ken Miura and Takeshi Sakurai (2015) “The Impact of Formal Insurance Provision on Farmer Behavior: Evidence from Rural Zambia” PRIMCED Discussion Paper No.67. Hitotsubashi University.
Abstract: This study presents empirical evidence of changes in farmer behavior after offering them weather index insurance contracts. To quantify the impacts of insurance on agricultural decision-making, this study makes use of the random allocation of free insurance to small-scale farmers in rural Zambia, while endogenous insurance demands are also investigated. Our empirical results show that the provision of insurance leads farmers to sow maize seeds earlier — a practice known to increase maize yield, but which is riskier in terms of rainfall variability. In addition, it is found that insured farmers enlarge the maize field size and use more fertilizer; that is, the provision of insurance encourages farmers to invest in maize production in a risky environment. We also report suggestive but interesting evidence that weather index insurance could substitute for small-livestock holdings, a conventional self-insurance tool used to mitigate income variation.