Ambiguity Aversion Decreases Demand for Partial Insurance: Evidence from African Farmers∗
نویسنده
چکیده
Indemnifying smallholder farmers against crop loss is thought 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 while these products may reduce information asymmetry, ambiguity averse farmers struggle to assess whether the contracts reduce risk. I formalize this argument and test the theory using data from two RCTs, conducted in Malawi and Kenya. Comparative statics from the theory are confirmed in both data sets, and I argue that income losses from ambiguity aversion may be substantial. JEL Codes: D03 D81 G22 O12 O16 Q12 Q14
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