1932

Abstract

This article provides a review of recent research on agricultural insurance (AI) in developing countries. Agricultural producers face a variety of significant risks; historically, only government-subsidized products have achieved widespread adoption. A recent contractual innovation, which links insurance payouts to realized weather rather than farmer indemnity, has spurred substantial research in the past decade. This review begins by describing the experience in developed economies and then turns to developing countries, covering the following topics: farmers' adoption of AI, how AI affects their decision to invest in risky assets, and the extent to which AI helps farmers smooth income and consumption. We conclude with suggestions for future research and practice related to AI in developing countries.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-economics-080315-015225
2017-08-02
2024-03-28
Loading full text...

Full text loading...

/deliver/fulltext/economics/9/1/annurev-economics-080315-015225.html?itemId=/content/journals/10.1146/annurev-economics-080315-015225&mimeType=html&fmt=ahah

Literature Cited

  1. Allen T, Atkin D. 2016. Volatility, insurance, and gains from trade Unpublished manuscript, MIT Cambridge, MA:
  2. Angeletos G-M, Laibson D, Repetto A, Tobacman J, Weinberg S. 2001. The hyperbolic consumption model: calibration, simulation, and empirical evaluation. J. Econ. Perspect. 15:347–68 [Google Scholar]
  3. Atwood JA, Watts MJ, Baquet AE. 1996. An examination of the effects of price supports and federal crop insurance upon the economic growth, capital structure, and financial survival of wheat growers in the northern High Plains. Am. J. Agric. Econ. 78:1212–24 [Google Scholar]
  4. Babcock BA, Hennessy DA. 1996. Input demand under yield and revenue insurance. Am. J. Agric. Econ. 78:2416–27 [Google Scholar]
  5. Barnett BJ. 2004. Agricultural index insurance products: strengths and limitations Presented at Agric. Outlook Forum, Feb. 19–20 Arlington, VA:
  6. Barnett BJ, Mahul O. 2007. Weather index insurance for agriculture and rural areas in lower-income countries. Am. J. Agric. Econ. 89:51241–47 [Google Scholar]
  7. Barseghyan L, Molinari F, O'Donoghue T, Teitelbaum JC. 2013. The nature of risk preferences: evidence from insurance choices. Am. Econ. Rev. 103:62499–529 [Google Scholar]
  8. Bekkerman A, Smith VH, Watts MJ. 2012. The SURE program and incentives for crop insurance participation: a theoretical and empirical analysis. Agric. Finance Rev. 72:3381–401 [Google Scholar]
  9. Binswanger-Mkhize HP. 2012. Is there too much hype about index-based agricultural insurance?. J. Dev. Stud. 48:2187–200 [Google Scholar]
  10. Bourgeon J-M, Chambers RG. 2003. Optimal area yield insurance reconsidered. Am. J. Agric. Econ. 85:3590–604 [Google Scholar]
  11. Bozic M, Newton J, Thraen CS, Gould BW. 2014. Tails curtailed: accounting for nonlinear dependence in pricing margin insurance for dairy farmers. Am. J. Agric. Econ. 96:41117–35 [Google Scholar]
  12. Breustedt G, Bokusheva R, Heidelbach O. 2008. Evaluating the potential of index insurance schemes to reduce crop yield risk in an arid region. J. Agric. Econ. 59:2312–28 [Google Scholar]
  13. Bryan G. 2014. Ambiguity aversion decreases demand for partial insurance: evidence from African farmers Work. Pap., London School Econ London:
  14. Cai H, Chen Y, Fang H, Zhou L-A. 2015. The effect of microinsurance on economic activities: evidence from a randomized field experiment. Rev. Econ. Stat. 97:2287–300 [Google Scholar]
  15. Cai J. 2015. The impact of insurance provision on household production and financial decisions. Am. Econ. J. Econ. Policy 8:44–88 [Google Scholar]
  16. Cai J, de Janvry A, Sadoulet E. 2015. Social networks and the decision to insure. Am. Econ. J. Appl. Econ. 7:281–108 [Google Scholar]
  17. Cai J, Song C. 2017. Do disaster experience and knowledge affect insurance take-up decisions?. J. Dev. Econ. 124:83–94 [Google Scholar]
  18. Carter M, Barrett C. 2006. The economics of poverty traps and persistent poverty: an asset-based approach. J. Dev. Stud. 42:2178–99 [Google Scholar]
  19. Carter MR, de Janvry A, Sadoulet E, Sarris A. 2014. Index-based weather insurance for developing countries: a review of evidence and a set of propositions for up-scaling Work. Pap., Fond. Études Rech. Dév. Int Clermont-Ferrand, Fr.:
  20. Casaburi L, Willis J. 2016. Interlinking product and insurance markets: experimental evidence from contract farming in Kenya Work. Pap., Harvard Univ. Cambridge, MA:
  21. Chambers RG. 1989. Insurability and moral hazard in agricultural insurance markets. Am. J. Agric. Econ. 71:3604–16 [Google Scholar]
  22. Clarke DJ, Mahul O, Rao KN, Verma N. 2012. Weather based crop insurance in India Policy Res. Work. Pap. World Bank Washington, DC:
  23. Coate S, Ravallion M. 1993. Reciprocity without commitment: characterization and performance of informal insurance arrangements. J. Dev. Econ. 40:11–24 [Google Scholar]
  24. Coble KH, Barnett BJ. 2013. Why do we subsidize crop insurance?. Am. J. Agric. Econ. 95:2498–504 [Google Scholar]
  25. Coble KH, Knight TO, Pope RD, Williams JR. 1997. An expected indemnity approach to the measurement of moral hazard in crop insurance. Am. J. Agric. Econ. 79:1216–26 [Google Scholar]
  26. Cole S. 2015. Overcoming barriers to microinsurance adoption: evidence from the field. Geneva Pap 2015:1–21 [Google Scholar]
  27. Cole S, Giné X, Tobacman J, Topalova P, Townsend R, Vickery J. 2013. Barriers to household risk management: evidence from India. Am. Econ. J. Appl. Econ. 5:1104–35 [Google Scholar]
  28. Cole S, Giné X, Vickery J. 2016. How does risk management influence production decisions? Evidence from a field experiment. Rev. Financ. Stud. https://doi.org/10.1093/rfs/hhw080 [Crossref]
  29. Cole S, Healy A, Werker E. 2012. Do voters demand responsive governments? Evidence from Indian disaster relief. J. Dev. Econ. 97:2167–81 [Google Scholar]
  30. Cole S, Kirwan B. 2009. Between the corporation and the household: commodity prices, risk management, and agricultural production in the United States. Am. J. Agric. Econ. 91:51243–49 [Google Scholar]
  31. Cole S, Stein D, Tobacman J. 2014. Dynamics of demand for index insurance: evidence from a long-run field experiment. Am. Econ. Rev. 104:5284–90 [Google Scholar]
  32. Cole S, Tufano P. 2007. BASIX Harvard Bus. School Case 207–099, Harvard Univ. Cambridge, MA:
  33. Cole S, Xu L. 2013. China Life Harvard Bus. School Case 212–030, Harvard Univ. Cambridge, MA:
  34. Collins KJ. 2011. The state of US livestock insurance NCIS Spec. Rep. 160538, Natl. Crop Ins. Serv. Overland Park, KS:
  35. Cui R. 2015. A detailed introduction to “Swine Price Index Insurance.”. China Swine Information Feb. 6
  36. Dercon S, Vargas Hill R, Clarke D, Outes-Leon I, Seyoum TA. 2014. Offering rainfall insurance to informal insurance groups: evidence from a field experiment in Ethiopia. J. Dev. Econ. 106:132–43 [Google Scholar]
  37. Dubois P, Jullien B, Magnac T. 2008. Formal and informal risk sharing in LDCs: theory and empirical evidence. Econometrica 76:4679–725 [Google Scholar]
  38. Emerick K, de Janvry A, Sadoulet E, Dar MH. 2016. Technological innovations, downside risk, and the modernization of agriculture. Am. Econ. Rev. 106:61537–61 [Google Scholar]
  39. Garrido A, Zilberman D. 2008. Revisiting the demand for agricultural insurance: the case of Spain. Agric. Finance Rev. 68:143–66 [Google Scholar]
  40. Gaurav S, Cole S, Tobacman J. 2011. Marketing complex financial products in emerging markets: evidence from rainfall insurance in India. J. Mark. Res. 48:150–62 [Google Scholar]
  41. Gennaioli N, Shleifer A, Vishny R. 2012. Neglected risks, financial innovation, and financial fragility. J. Financ. Econ. 104:3452–68 [Google Scholar]
  42. Giné X, Yang D. 2009. Insurance, credit, and technology adoption: field experimental evidence from Malawi. J. Dev. Econ. 89:11–11 [Google Scholar]
  43. Glauber JW. 2013. The growth of the federal crop insurance program, 1990–2011. Am. J. Agric. Econ. 95:2482–88 [Google Scholar]
  44. Goodwin BK, Smith VH. 2003. An ex post evaluation of the Conservation Reserve, federal crop insurance, and other government programs: program participation and soil erosion. J. Agric. Res. Econ. 28:2201–16 [Google Scholar]
  45. Goodwin BK, Smith VH. 2010. Private and public roles in providing agricultural insurance in the United States. Public and Private Roles in Insurance JR Brown 173–209 Washington, DC: AEI Press [Google Scholar]
  46. Goodwin BK, Smith VH. 2013. What harm is done by subsidizing crop insurance?. Am. J. Agric. Econ. 95:2489–97 [Google Scholar]
  47. Goodwin BK, Vandeveer ML, Deal JL. 2004. An empirical analysis of acreage effects of participation in the Federal Crop Insurance Program. Am. J. Agric. Econ. 86:41058–77 [Google Scholar]
  48. Gramig BM, Horan RD, Wolf CA. 2009. Livestock disease indemnity design when moral hazard is followed by adverse selection. Am. J. Agric. Econ. 91:3627–41 [Google Scholar]
  49. Hanouch M, Parker SR. 2013. Microfinance and mobile banking: blurring the lines? Work. Pap., Consult. Group Assist Poor (CGAP) Washington, DC:
  50. Hazell PBR, Pomareda C, Valdés A. 1986. Crop Insurance for Agricultural Development: Issues and Experience Baltimore, MD: Johns Hopkins Univ. Press
  51. Hess U. 2003. Innovative financial services for India: monsoon-indexed lending and insurance for smallholders Agric. Rural Dev. Work. Pap. 9 World Bank Washington, DC:
  52. Holt MT, Aradhyula SV. 1998. Endogenous risk in rational-expectations commodity models: a multivariate generalized ARCH-M approach. J. Empir. Finance 5:299–129 [Google Scholar]
  53. Holt MT, Moschini G. 1992. Alternative measures of risk in commodity supply models: an analysis of sow farrowing decisions in the United States. J. Agric. Resour. Econ. 17:11–12 [Google Scholar]
  54. Horowitz JK, Lichtenberg E. 1993. Insurance, moral hazard, and chemical use in agriculture. Am. J. Agric. Econ. 75:4926–35 [Google Scholar]
  55. Jack W, Suri T. 2014. Risk sharing and transactions costs: evidence from Kenya's mobile money revolution. Am. Econ. Rev. 104:1183–223 [Google Scholar]
  56. Kahneman D, Tversky A. 1979. Prospect theory: an analysis of decision under risk. Econometrica 47:2263–92 [Google Scholar]
  57. Karlan D, Osei R, Osei-Akoto I, Udry C. 2014. Agricultural decisions after relaxing credit and risk constraints. Q. J. Econ. 129:2597–652 [Google Scholar]
  58. Karlan D, Zinman J. 2009. Observing unobservables: identifying information asymmetries with a consumer credit field experiment. Econometrica 77:61993–2008 [Google Scholar]
  59. Kerer J. 2013. Background paper on the situation of agricultural insurance in Kenya with reference to international best practices Adapt. Clim. Change Insur. (ACCI) Rep Nairobi, Kenya:
  60. Knight TO, Coble KH. 1997. Survey of US multiple peril crop insurance literature since 1980. Appl. Econ. Perspect. Policy 19:1128–56 [Google Scholar]
  61. Kramer RA. 1983. Federal crop insurance 1938–1982. Agric. Hist. 57:2181–200 [Google Scholar]
  62. Lence SH. 1996. Relaxing the assumptions of minimum-variance hedging. J. Agric. Resour. Econ. 21:139–55 [Google Scholar]
  63. Li X. 2014. The development of agricultural insurance in China Presented at CAS Reinsur. Semin., May 21–22 New York:
  64. Ligon E, Thomas JP, Worrall T. 2002. Informal insurance arrangements with limited commitment: theory and evidence from village economies. Rev. Econ. Stud. 69:1209–44 [Google Scholar]
  65. Mahlase A. 2013. Crop insurance in South Africa Presented at South Afr. Insur. Assoc. Conf., Feb. 22
  66. Mahul O, Skees JR. 2007. Managing agricultural risk at the country level: the case of index-based livestock insurance in Mongolia Policy Res. Work. Pap. 4325 World Bank Washington, DC:
  67. Mahul O, Stutley CJ. 2010. Government Support to Agricultural Insurance: Challenges and Options for Developing Countries Washington, DC: World Bank
  68. Maynard N, Mehta P, Parker J, Steinberg J. 2012. Can games build financial capability? Financial entertainment: a research overview Work. Pap. WR-963-SSA, Financ. Lit. Cent RAND Corp Santa Monica, CA:
  69. Miranda MJ. 1991. Area-yield crop insurance reconsidered. Am. J. Agric. Econ. 73:2233–42 [Google Scholar]
  70. Miranda MJ, Farrin K. 2012. Index insurance for developing countries. Appl. Econ. Perspect. Policy 34:3391–427 [Google Scholar]
  71. Miranda MJ, Glauber JW. 1993. Estimation of dynamic nonlinear rational expectations models of primary commodity markets with private and government stockholding. Rev. Econ. Stat. 75:3463–70 [Google Scholar]
  72. Miranda MJ, Glauber JW. 1997. Systemic risk, reinsurance, and the failure of crop insurance markets. Am. J. Agric. Econ. 79:1206–15 [Google Scholar]
  73. Miranda MJ, Gonzalez-Vega C. 2011. Systemic risk, index insurance, and optimal management of agricultural loan portfolios in developing countries. Am. J. Agric. Econ. 93:2399–406 [Google Scholar]
  74. Mobarak AM, Rosenzweig MR. 2013a. Informal risk sharing, index insurance, and risk taking in developing countries. Am. Econ. Rev. 103:3375–80 [Google Scholar]
  75. Mobarak AM, Rosenzweig MR. 2013b. Selling formal insurance to the informally insured Work. Pap., Stanford Univ Stanford, CA:
  76. Mobarak AM, Rosenzweig MR. 2014. Risk, insurance and wages in general equilibrium NBER Work. Pap. 19811
  77. Moschini G, Hennessy DA. 2001. Uncertainty, risk aversion, and risk management for agricultural producers. Handbook of Agricultural Economics 1 BL Gardner, GC Rausser 87–153 Amsterdam: Elsevier [Google Scholar]
  78. OECD (Organ. Econ. Coop. Dev.). 2011. Managing Risk in Agriculture: Policy Assessment and Design Paris: OECD
  79. Padmavathi V. 2013. The lapsation of life insurance policies in India: causes and costs Ind. Rep., Chart. Insur. Inst. London:
  80. Quiggin JC, Karagiannis G, Stanton J. 1993. Crop insurance and crop production: an empirical study of moral hazard and adverse selection. Aust. J. Agric. Resour. Econ. 37:295–113 [Google Scholar]
  81. Raju SS, Chand R. 2008. Agricultural insurance in India: problems and prospects Work. Pap. 8, Natl. Cent. Agric. Econ. Policy Res., Indian Counc. Agric. Res. New Delhi:
  82. Rosenzweig MR, Binswanger HP. 1993. Wealth, weather risk and the composition and profitability of agricultural investments. Econ. J. 103:41656–78 [Google Scholar]
  83. Rosenzweig MR, Wolpin KI. 1993. Credit market constraints, consumption smoothing, and the accumulation of durable production assets in low-income countries: investments in bullocks in India. J. Polit. Econ. 101:2223–44 [Google Scholar]
  84. Schoengold K, Ding Y, Headlee R. 2015. The impact of ad hoc disaster and crop insurance programs on the use of risk-reducing conservation tillage practices. Am. J. Agric. Econ. 97:3897–919 [Google Scholar]
  85. Shields DA. 2013. Federal crop insurance: background Congr. Res. Serv. Rep. R40532 Washington, DC:
  86. Sigurdson D, Sin R. 1994. An aggregate analysis of Canadian crop insurance policy. Economics of Agricultural Crop Insurance: Theory and Evidence DL Hueth, WH Furtan 45–72 Boston: Kluwer Acad. [Google Scholar]
  87. Singh R. 2013. Agricultural livelihoods and crop insurance in India: situation analysis and assessment Dtsch. Ges. Int. Zsarb. (GIZ) Rep New Delhi:
  88. Smith VH. 2011. Premium payments: why crop insurance costs too much Policy Pap., Am. Enterp. Inst Washington, DC:
  89. Smith VH, Glauber JW. 2012. Agricultural insurance in developed countries: Where have we been and where are we going?. App. Econ. Perspect. Policy 34:3363–90 [Google Scholar]
  90. Smith VH, Goodwin BK. 1996. Crop insurance, moral hazard, and agricultural chemical use. Am. J. Agric. Econ. 78:2428–38 [Google Scholar]
  91. Smith VH, Watts MA. 2009. Index based agricultural insurance in developing countries: feasibility, scalability and sustainability Bill Melinda Gates Found. Rep. Seattle, WA:
  92. Thaler RH, Sunstein CR. 2008. Nudge New Haven, CT: Yale Univ. Press
  93. Townsend RM. 1994. Risk and insurance in village India. Econometrica 62:3539–91 [Google Scholar]
  94. UNCTAD (UN Conf. Trade Dev.). 1994. Agricultural insurance in developing countries UNCTAD Secr. Rep. UNCTAD/SDD/INS/1/Rev 1, Geneva Switz.:
  95. USGAO (US Gov. Account. Off.). 1999. Agriculture in transition: farmers’ use of risk management strategies USGAO Rep. RCED-99-90 Washington, DC:
  96. USGAO (US Gov. Account. Off.). 2015. Crop insurance: In areas with higher crop production risks, costs are greater, and premiums may not cover expected losses USGAO Rep. GAO-15–215 Washington, DC:
  97. Vercammen J, Van Kooten GC. 1994. Moral hazard cycles in individual coverage crop insurance. Am. J. Agric. Econ. 41:2250–61 [Google Scholar]
  98. Wang J. 2015. Shanghai meteorological index insurance won “Financial Innovation” award. China Meteorological AdministrationFeb. 15
  99. World Bank. 2007. China—Innovations in Agricultural Insurance Washington, DC: World Bank
  100. World Bank. 2010. Agricultural Insurance in Latin America: Developing the Market Washington, DC: World Bank
  101. World Bank. 2011. Enhancing Crop Insurance in India Washington, DC: World Bank
  102. Wright BD, Hewitt JD. 1994. All risk crop insurance: lessons from theory and experience. Economics of Agricultural Crop Insurance: Theory and Evidence DL Hueth, WH Furtan 73–112 Boston: Kluwer Acad. [Google Scholar]
  103. Xue B, Qiao X. 2014. China has become the world's second largest agricultural insurance market. People's NewsMarch 11
  104. Yamauchi T. 1986. Evolution of the crop insurance program in Japan. Crop Insurance for Agricultural Development: Issues and Experience PBR Hazell, C Pomareda, A Valdés 223–39 Baltimore, MD: Johns Hopkins Univ. Press
  105. Yao H. 2015. China's first milk price index insurance launched in Tai'an. Sino Insurance June 5
  106. Ye Q, Jiang X. 2014. Agro-meteorological index insurance pilot programs in Anhui Province. People's DailyMarch 19
  107. Zhang W. 2014. Agricultural insurance market as the world's second largest, with subsidy/premium ratio reaching 80%. National Business DailyJuly 3
/content/journals/10.1146/annurev-economics-080315-015225
Loading
  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error