American Economic Review: Vol. 104 No. 5 (May 2014)

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Dynamics of Demand for Index Insurance: Evidence from a Long-Run Field Experiment

Article Citation

Cole, Shawn, Daniel Stein, and Jeremy Tobacman. 2014. "Dynamics of Demand for Index Insurance: Evidence from a Long-Run Field Experiment." American Economic Review, 104(5): 284-90.

DOI: 10.1257/aer.104.5.284

Abstract

This paper estimates how experimentally-manipulated experiences with a novel financial product, rainfall index insurance, affect subsequent insurance demand. Using a seven-year panel, we develop three main findings. First, recent experience matters for demand, consistent with overinference from small samples. Second, spillovers also matter, in the sense that the recent payout experience of village co-residents affects insurance demand about as much as one's own recent payout experience. Third, the spillover effect decays as time passes while the effect of one's own experience does not. We discuss implications of this analysis for commercial sustainability of this complicated but promising risk management technology.

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Online Appendix (984.37 KB) | Download Data Set (226.16 KB) | Author Disclosure Statement(s) (259.66 KB)

Authors

Cole, Shawn (Harvard U)
Stein, Daniel (World Bank)
Tobacman, Jeremy (U PA)

JEL Classifications

C93: Field Experiments
G22: Insurance; Insurance Companies; Actuarial Studies
O13: Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Q11: Agriculture: Aggregate Supply and Demand Analysis; Prices
Q14: Agricultural Finance
Q54: Climate; Natural Disasters; Global Warming


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