14.12.2018

Even such a significant discount only managed to increase the take-up rate to six per cent, which points to the negative effect on take-up rates of the severe cash constraints that these farmers find themselves in at the beginning of the year.

Additional experiments suggest that farmers’ cash constraints and present bias – an excessive focus on today vs. the future – are important factors in explaining these results.

Given this simple and effective solution for a large problem, why is the idea not yet used extensively in the industry? Lorenzo Casaburi explains: “Contract enforcement is key, and we need to understand the conditions within which this simple solution can reach its full potential.” Farmers have to trust that they will receive the insurance payout, and insurers or buyers need to be sure that farmers will sell their produce to them (minus the insurance premium), and not to some other buyer.

(UZH/idw/wi)

Reference:

Casaburi, Lorenzo, and Jack Willis.