Weather Insurance Savings Accounts
Better insurance against rainfall risk could improve the security of hundreds of millions of agricultural households around the world. However, customers have shown little demand for stand-alone insurance products. This paper theoretically and expe...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2015/04/24324721/weather-insurance-savings-accounts http://hdl.handle.net/10986/21849 |
| Summary: | Better insurance against rainfall risk
could improve the security of hundreds of millions of
agricultural households around the world. However, customers
have shown little demand for stand-alone insurance products.
This paper theoretically and experimentally analyzes an
innovative financial product called a Weather Insurance
Savings Account (WISA), which combines savings and rainfall
insurance. The paper uses a standard model of intertemporal
insurance demand to study how customers demand for a WISA
varies with the amount of insurance offered. A laboratory
experiment is then used to elicit participants valuations of
pure insurance, pure savings, and intermediate WISA types.
Contrary to the standard model, within-subjects comparisons
show that many participants prefer both pure insurance and
pure savings to any interior mixture of the two, suggesting
that market demand for a WISA is likely to be low.
Additional experimental and observational evidence
distinguishes between several alternative explanations. One
possibility that survives the additional tests is
diminishing sensitivity to losses, as in prospect theory. |
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