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

Cai, Jing (2013): 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-difference and triple difference estimations. I find that, first, introducing insurance increases the production area of insured crops by around 20% and decreases production diversification; second, provision of insurance raises the credit demand by 25%; third, it decreases household saving by more than 30%; fourth, the effect of insurance on borrowing persists in the long-run, while the effect on saving is significant only in the medium-run; and fifth, the impact of insurance is greater on larger farmers and on households with lower migration remittance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Insurance; Production; Borrowing; Saving
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q12 - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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