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After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection
Author(s) -
Janzen Sarah A.,
Carter Michael R.
Publication year - 2019
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aay061
Subject(s) - microinsurance , consumption smoothing , poverty , annuity , consumption (sociology) , business , food security , asset (computer security) , economics , coping (psychology) , shock (circulatory) , social protection , poverty trap , natural resource economics , finance , economic growth , agriculture , pension , unemployment , geography , social science , computer security , sociology , computer science , psychiatry , archaeology , psychology , medicine , life annuity
Abstract To cope with shocks, poor households with inadequate access to financial markets can sell assets to smooth consumption and, or reduce consumption to protect assets. Both coping strategies can be economically costly and contribute to the transmission of poverty, yet limited evidence exists regarding the effectiveness of insurance to mitigate these costs in risk‐prone developing economies. Utilizing data from an RCT in rural Kenya, this paper estimates that on average an innovative microinsurance scheme reduces both forms of costly coping. Threshold econometrics grounded in theory reveal a more complex pattern: (i) wealthier households primarily cope by selling assets, and insurance makes them 96 percentage points less likely to sell assets following a shock; (ii) poorer households cope primarily by cutting food consumption, and insurance reduces by 49 percentage points their reliance on this strategy.