Endogenous Partial Insurance and Inequality

Contract farming as partial insurance

World Development ◽

10.1016/j.worlddev.2020.105274 ◽

2021 ◽

Vol 140 ◽

pp. 105274

Author(s):

Marc F. Bellemare ◽

Yu Na Lee ◽

Lindsey Novak

Keyword(s):

Contract Farming ◽

Partial Insurance

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Partial Insurance and Aggregate Welfare in China, 1989-2009

SSRN Electronic Journal ◽

10.2139/ssrn.2511587 ◽

2014 ◽

Author(s):

Raul Santaeulalia ◽

Yu Zheng

Keyword(s):

Partial Insurance

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Ambiguity Aversion Decreases the Impact of Partial Insurance: Evidence from African Farmers

Journal of the European Economic Association ◽

10.1093/jeea/jvy056 ◽

2019 ◽

Vol 17 (5) ◽

pp. 1428-1469 ◽

Cited By ~ 8

Author(s):

Gharad Bryan

Keyword(s):

New Technologies ◽

Ambiguity Aversion ◽

Smallholder Farmers ◽

Limited Liability ◽

Comparative Statics ◽

Reduce Risk ◽

Using Data ◽

Credit Contracts ◽

The Impact ◽

Partial Insurance

Abstract Indemnifying smallholder farmers against crop loss is thought to play an important role in encouraging the adoption of new technologies and facilitating productivity growth, but to be infeasible due to information problems. Consequently there is interest in developing alternative, partial, insurance products. Examples include rainfall insurance and the limited liability inherent in credit contracts. I argue that although these products may reduce information asymmetry, ambiguity averse farmers struggle to assess whether the contracts reduce risk. This problem is most pronounced when the production technology is ambiguous, as is likely the case for new technologies. I formalize this argument and test the theory using data from two RCTs, conducted in Malawi and Kenya. Comparative statics from the theory are consistent with both sets of data, and I argue that income losses from ambiguity aversion may be substantial.

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Endogenous Partial Insurance and Inequality

Journal of the European Economic Association ◽

10.1093/jeea/jvz034 ◽

2019 ◽

Vol 18 (5) ◽

pp. 2270-2314

Author(s):

Eric Mengus ◽

Roberto Pancrazi

Keyword(s):

Interest Rate ◽

Middle Class ◽

Wealth Inequality ◽

Consumption Smoothing ◽

Insurance Market ◽

Asset Markets ◽

Asset Accumulation ◽

Poor Households ◽

Participation Costs ◽

Partial Insurance

Abstract In this paper, we propose a model of endogenous partial insurance and we investigate its implications for macroeconomic outcomes, such as wealth inequality, asset accumulation, interest rate, and consumption smoothing. To this end, we include participation costs to state-contingent asset markets into an otherwise standard Aiyagari (1994) model. We highlight the resulting nonmonotonic relationship between wealth and insurance-market participation when insurance is costly. Poor households remain uninsured, middle-class households participate in the insurance market, whereas rich households decide to self-insure by only purchasing risk-free assets. After theoretically characterizing the endogenous partial insurance equilibrium, we quantify its effect, emphasizing the roles of a participation channel and an interest rate channel.

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