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Insurance, credit, and technology adoption: field experimental evidence from Malawi

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Publication date
05/12/2007
Number of Pages
33
Language:
English
Type of Publication:
Working Papers & Briefs
Focus Region:
Sub-Saharan Africa
Focus Topic:
Institutions / Organizations
Rural Finance / Insurance
Type of Risk:
Logistical & infrastructural
Market-related
Type of Risk Managment Option:
Risk transfer
Commodity:
Crops
Author
Xavier Gine, Dean Yang
Organization
The World Bank

The adoption of new agricultural technologies may be discouraged because of their inherent riskiness. This study implemented a randomized field experiment to ask whether the provision of insurance against a major source of production risk induces farmers to take out loans to invest in a new crop variety. The study sample was composed of roughly 800 maize and groundnut farmers in Malawi, where by far the dominant source of production risk is the level of rainfall. There is suggestive evidence that the reduced take-up of the insured loan among half of randomly selected farmers was due to the high cognitive cost of evaluating the insurance: insured loan take-up was positively correlated with farmer education levels. By contrast, the take-up of the uninsured loan was uncorrelated with farmer education.