How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment

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This paper shows how access to an innovative retail risk management instrument influences “real” production decisions. The study focuses on small agricultural firms in a semi-arid region of India, a setting in which rainfall variability during the monsoon is the primary determinant of production and income risk. The paper uses a randomized controlled trial approach to study how an innovative risk management instrument for hedging rainfall risk affects production decisions among a sample of Indian agricultural firms.  The analysis finds that the provision of insurance induces farmers to shift production toward higher-return, but higher-risk cash crops, particularly among more-educated farmers. The results support the view that financial innovation may help mitigate the real effects of uninsured production risk.

Document Information

Document Type Paper
Autor Cole, S.; Giné, X.; Vickery, J.
Year of Publication 2013
Editor The World Bank
Washington, DC; USA
Número de Páginas 55 pp.
Región / País Global /
Idioma Principal Inglés (en)
Palabras clave
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