@article{Mobarak:121671,
      recid = {121671},
      author = {Mobarak, A. Mushfiq and Rosenzweig, Mark R.},
      title = {Selling formal Insurance to the Informally Insured},
      address = {2012-02},
      number = {1858-2016-152732},
      series = {Economic Growth Center Discussion Paper},
      pages = {40},
      year = {2012},
      abstract = {Unpredictable rainfall is an important risk for  agricultural activity, and farmers in developing countries  often receive incomplete insurance from informal  risk-sharing networks.  We study the demand for, and  effects of, offering formal index-based rainfall insurance  through a randomized experiment in an environment where the  informal risk sharing network can be readily identified and  richly characterized: sub-castes in rural India. A model  allowing for both idiosyncratic and aggregate risk shows  that informal networks lower the demand for formal  insurance only if the network indemnifies against aggregate  risk, but not if its primary role is to insure against  farmer-specific losses.  When formal insurance carries  basis risk (mismatches between payouts and actual losses  due to the remote location of the rainfall gauge), informal  risk sharing that covers idiosyncratic losses enhance the  benefits of index insurance.  Formal index insurance  enables households to take more risk even in the presence  of informal insurance.  We find substantial empirical  support of these nuanced predictions of the model by  conducting the experiment (randomizing both index insurance  offers, and the locations of rainfall gauges) on castes for  whom we have a rich history of group responsiveness to  household and aggregate rainfall shocks.},
      url = {http://ageconsearch.umn.edu/record/121671},
      doi = {https://doi.org/10.22004/ag.econ.121671},
}