invité: Santiago Gómez

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Thursday, 14 June 2018

Séminaire Programme III-GREThA
Séminaire Bordeaux Développement

Santiago Gómez

PhD Student, School of Economics, Universidad de los Andes

Jeudi 14 Juin
  13h - 14h30 
GREThA - salle F340

 

  "Effects of Non-Insurable Risk on the Demand for Weather Insurance. Experimental Games with Colombian Coffee Growers"
(Santiago Gómez, Andres Moya and Stephen Boucher).

Abstract : "The threat of climate change has make the need for better instruments to deal with crop variability a growing need. Weather insurance, particularly in the form of Index Insurance has been gaining increasing attention. While it has many advantages (i.e. lower cost, it is does not suffer from moral hazard), its biggest drawbacks are related with a non-perfect correlation of the index and crop yields. The possible yield losses that the farmers can suffer and that are not covered by insurance are known as basis risk. Basis risk has been identified as a possible deterrent of index insurance adoption. We show that farmers reactions to basis risk differ depending on the source of basis risk both theoretically and empirically. There are two types of basis risks. One coming from the presence of idiosyncratic risks that face the farmers and that are not covered by the Index Insurance (I). The other, coming for a not perfect correlation of the measures of the weather expressed by the index and the actual expression of the weather at the farm level (II). We design and apply an economics experiment among 393 coffee growers in 23 different municipalities in Colombia, during November-December 2017, to test the effect that these two different types of basis risks have on insurance take-up. Theoretically they should not have the same type of effect on willingness to pay. Our results show that the basis risk that is produced by not perfect correlation of the index with the actual weather (II) do decrease the willingness to pay for the insurance, while the basis risk derived from the risk structure that farmers face (I) does not have a discernible effect on the willingness to access insurance for the full sample. Nonetheless these last type of basis risk (I) do have a positive effect on take-up for people with low education levels, while it is no present for high education levels participants. It also seem that the effects are particularly concentrated in women. The direction (signs) of the effects are in line with the ones predicted by standard risk aversion economic theory.