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June 4, 2013

FAI Video: Shawn Cole Discusses Microinsurance (Part 1)

By FAI

Part of our series, In Conversation with FAI

Economist Shawn Cole discusses findings from several experiments on rainfall insurance in India and index insurance products. The goal of the effort is to help farmers manage risks due to failed monsoons when making production decisions. Read his paper with Xavier Giné, Jeremy Tobacman, Petia Topalova, Robert Townsend, and James Vickery, Barriers to Household Risk Management: Evidence from India.

Transcript of the Conversation:

Shawn Cole: So, with a series of co-authors I am working on several experiments on rainfall insurance in India and index insurance products. And the goal is to help farmers manage risks due to failed monsoons when making production decisions. And I guess there are two potential ways insurance could improve farmer outcome: one is simply consumption smoothing. So, if there is a terrible drought, they get the payment which helps them continue to send their kids to school, buy food staples, repay their debts etc., so that they can plan ahead in the subsequent year. But also by empowering farmers to manage risks they may be willing to take riskier decisions that also have higher expected payouts and so we find just that.

So, [I’ll] talk about two experiments in this video. The first one is in Andhra Pradesh with Xavier Giné at the World Bank and James Vickery at the New York Fed. And there we were very interested in studying how this ability to manage risk effect investment decisions. We identified 1500 farmers in about 30 villages and in these villages rainfall insurance had already been around been around for 4 or 5 years, so everybody knew what the product was, they knew how it worked, they had seen payouts already been made so they kind of trusted the product was legitimate...[Read the whole transcript]

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