Crowding-in or crowding-out: The effect of humanitarian aid on households’ investments in climate adaptation

Fluhrer, Svenja (2023): Crowding-in or crowding-out: The effect of humanitarian aid on households’ investments in climate adaptation.

Abstract

Forecast-based Financing (FbF) is a new humanitarian instrument that helps vulnerable households to cope with climate shocks. While economists have posited that ex-post disaster aid decreases households’ investment in climate adaptation strategies such as agriculture insurance uptake, the effect of FbF on households’ adaptation investments is unknown. In this paper, I use a Randomized Controlled Trial approach to examine the effect of FbF on the demand for agriculture insurance among pastoralist households in Mongolia. I find that receiving FbF during an extreme weather event increases the uptake of livestock insurance for the following year, indicating that FbF crowds-in households’ investments in climate adaptation. I suggest increased risk awareness through which FbF affects insurance demand.

• Item Type: MPRA Paper
• Language: English
• Keywords: Adaptation, forecast-based financing, index-based agricultural insurance, livestock, charity hazard
• Subjects: H - Public Economics > H8 - Miscellaneous Issues > H84 - Disaster Aid; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture

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