Arbeitspapier

Index Based Insurance in Developing Countries: Rational Neglect?

Microinsurance adoption in developing countries is low, despite its potential to foster economic growth. Recent research is not able to explain the low demand within the neoclassical framework. I contribute to this stream of research by proposing rational as well as boundedly rational explanations for the low attractiveness of microinsurance within a stochastic framework. More precisely, I analyze weather index insurance. My model makes separate predictions for close farmers, whose location is near a weather station, and distant farmers. Results show that the latter ask for less than 50% insurance coverage even under perfect rationality. I extend the model by integrating incorrect beliefs. I can show that a lack of trust reduces insurance demand most for close farmers, while a lack of knowledge about the insurance negatively affects the demand of distant farmers. Moreover, subsidies are more effective for close than for distant farmers.

Language
Englisch

Classification
Wirtschaft
Insurance; Insurance Companies; Actuarial Studies
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Subject
index insurance
basis risk
microinsurance
developing countries
understanding of insurance products
trust in insurer

Event
Geistige Schöpfung
(who)
Würtenberger, Daniel
Event
Veröffentlichung
(who)
ZBW – Leibniz Information Centre for Economics
(where)
Kiel, Hamburg
(when)
2019

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Würtenberger, Daniel
  • ZBW – Leibniz Information Centre for Economics

Time of origin

  • 2019

Other Objects (12)