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Risk, Insurance and Technology Adoption in Rural Development - Evidence from Southern Mexico

dc.contributor.advisorMusshoff, Oliver Prof. Dr.
dc.contributor.authorFreudenreich, Hanna
dc.titleRisk, Insurance and Technology Adoption in Rural Development - Evidence from Southern Mexicode
dc.contributor.refereeMußhoff, Oliver Prof. Dr.
dc.description.abstractengThe first paper of this dissertation in Chapter II, “Insurance for Technology Adoption: An Experimental Evaluation of Schemes and Subsidies with Maize Farmers in Mexico”, analyzes experimentally how bundling the purchase of a risky technology, namely a higher yielding maize seed variety, with different insurance schemes, affects the total take-up of that variety. In this regard, the paper looks at the effects of (1) partial insurance versus full insurance, (2) geographical versus local basis risk, and (3) fair versus below-fair premium. This is the first paper to evaluate insurance schemes with different levels of risk reduction, basis risk and premium subsidies regarding their effect on technology adoption. The results add to the debate on insurance serving as a potential tool for incentivizing agricultural producers to adopt more productive, but more risky technologies, and thereby enabling them to escape poverty (Carter et al. 2016; Fan et al. 2013; Lybbert and Carter 2014; Nicola 2015; World Bank 2013). The second paper in Chapter III, “The Relationship between Farmers’ Shock Experiences and their Uncertainty Preferences - Experimental Evidence from Mexico” addresses the relationship between farmers’ uncertainty preferences, sociodemographic characteristics and their experience of adverse harvest shocks. Uncertainty preferences refer to a range of preference parameters as derived from Cumulative Prospect Theory (Kahneman and Tversky 1979; Tversky and Kahneman 1992), namely risk aversion, loss aversion and probability weighting, as well as ambiguity aversion (Ellsberg 1961). A series of incentivized lottery games are used to estimate these parameters with the sample of Mexican maize farmers, controlling for (1) sociodemographic characteristics and (2) the severity of experienced maize harvest losses. While there are several field studies examining the effect of shocks on risk preferences with subjects from developing countries, only few look at preferences beyond Expected Utility Theory and take into account Cumulative Prospect Theory, and none has looked at ambiguity aversion. Therefore, this paper sheds light on the role that the experience of adverse random shocks, as well as a range of sociodemographic variables, have in explaining one’s uncertainty preferences. The third paper in Chapter IV, “Formal Insurance, Risk Sharing, and the Dynamics of Other-Regarding Preferences”, analyzes how selectively providing formal insurance to members of a risk sharing network affects informal transfers and, subsequently, the dynamics of other-regarding preferences within that network. Many poor households in developing countries are excluded from formal financial markets and therefore rely on the mutual exchange within informal risk sharing networks to protect themselves against adverse income shocks. Social interactions in the aftermath of such shocks have been found to strengthen the social ties among members of these networks, while formal insurance has been found to crowd-out these transfers. Similarly, this third paper finds that when some members of risk sharing networks become formally insured, it affects the informal exchange of transfers among members, as well as their other-regarding preferences. This is the first study to explore the effect of insurance on other-regarding preferences in that context. In order to do so, an incentivized, three-stage experimental design with a baseline and an ex-post measurement of altruism, trust and trustworthiness through dictator and trust games is implemented with random and anonymous groups of three. Between the baseline and the ex-post measurement, a solidarity game is played with the same anonymous groups as in the ex-post measurement of other-regarding preferences, during which the shock structure and the availability of formal insurance are varied exogenously. The findings suggest that the effect of insurance depends on (1) the covariance structure of shocks and (2) is different for the insured and non-insured members within a network. Insurance either decreases trust levels of the uninsured or increases trust levels of the insured subjects towards the other network members, depending on whether the shocks affects one or more than one network member at a time. Trustworthiness and altruism remain unaffected by insurance. Furthermore, the analysis indicates that the results are driven by a change in the dynamics of the transfer behavior within the network induced by formal insurance. Specifically, there is evidence that subjects increase trust levels towards their network members after receiving higher transfers relative to the maximum possible value from them, but not after receiving higher transfers in absolute
dc.contributor.coRefereeIbáñez, Marcela Prof. Dr.
dc.contributor.thirdRefereeQaim, Matin Prof. Dr.
dc.subject.engrural developmentde
dc.subject.engsocial networksde
dc.subject.engprospect theoryde
dc.subject.engtechnology adoptionde
dc.affiliation.instituteFakultät für Agrarwissenschaftende
dc.subject.gokfullLand- und Forstwirtschaft (PPN621302791)de

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