The Impact of Insurance Provision on Households’ Production and Financial Decisions

Abstract

Taking advantage of a natural experiment and a rich household-level panel dataset, this paper tests the impact of an agricultural insurance program on household level production, borrowing, and saving. The empirical strategy includes both difference-in-differences and triple differences estimations. I find that first, introducing insurance increases the production area of insured crops by around 15%; second, provision of insurance raises credit demand by 25% but has no impact on credit supply; third, while the policy does not affect either the rate or the level of household saving, farmers tend to hold more flexible-term savings after the insurance provision; fourth, the effects of insurance policy on production and savings persist in the long-run, while that on borrowing diminishes and becomes less significant over time; fifth, the impact of insurance is bigger on smaller farmers and on households with lower migration remittances.
Citation

Cai, J.  "The Impact of Insurance Provision on Households’ Production and Financial Decisions" Ferdi, Policy brief B73, September 2013