The Effect of Microinsurance on Economic Activities: Evidence from a Randomized Natural Field Experiment
This paper examines the impact of access to formal microinsurance on production and economic development. It presents results from a randomized natural field experiment conducted in Southwestern China in the context of insurance for sows.
Lack of access to formal insurance can prevent farmers from pursuing risky production activities with potential for large returns. The paper studies the effect of insurance access of farmers’ subsequent production decisions. It examines the effects of an unexpected snow storm for additional data. Findings include:
- Access to formal insurance significantly increases farmers’ tendency to raise sows;
- Lack of trust in government-sponsored insurance policies is a major impediment in farmers’ purchase of formal insurance.
The results suggest that microinsurance may be as important as microfinance in poverty alleviation. Microinsurance can supplement the effects of microfinance by protecting farmers from risks inherent in entrepreneurial activities.
