American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Dynamics of Demand for Index Insurance: Evidence from a Long-Run Field Experiment
American Economic Review
vol. 104,
no. 5, May 2014
(pp. 284–90)
Abstract
This paper estimates how experimentally-manipulated experiences with a novel financial product, rainfall index insurance, affect subsequent insurance demand. Using a seven-year panel, we develop three main findings. First, recent experience matters for demand, consistent with overinference from small samples. Second, spillovers also matter, in the sense that the recent payout experience of village co-residents affects insurance demand about as much as one's own recent payout experience. Third, the spillover effect decays as time passes while the effect of one's own experience does not. We discuss implications of this analysis for commercial sustainability of this complicated but promising risk management technology.Citation
Cole, Shawn, Daniel Stein, and Jeremy Tobacman. 2014. "Dynamics of Demand for Index Insurance: Evidence from a Long-Run Field Experiment." American Economic Review, 104 (5): 284–90. DOI: 10.1257/aer.104.5.284Additional Materials
JEL Classification
- C93 Field Experiments
- G22 Insurance; Insurance Companies; Actuarial Studies
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- Q11 Agriculture: Aggregate Supply and Demand Analysis; Prices
- Q14 Agricultural Finance
- Q54 Climate; Natural Disasters; Global Warming