Understanding pastoralists’ dynamic insurance uptake decisions: Evidence from four-year panel data in Ethiopia

Abstract

Using a unique data set covering four years and six semi-annual sales periods of an index-based livestock insurance (IBLI) product in southern Ethiopia, we examine the dynamics of pastoralists' demand for IBLI. We find that: (1) there is intertemporal dependence of an uptake decision, represented by correlations of unobserved household factors over time; (2) conditional on previous purchase decisions, factors related to continuing the purchase of IBLI to augment existing coverage and replace lapsing contracts differ significantly; (3) controlling for time-invariant household-fixed effects, neither a one-shot subsidy nor the uptake of others in one's social network influence subsequent demand, whereas less vegetation and reduced insurance premiums induce households to purchase IBLI. Overall, our study provides rigorous micro-evidence to better understand the dynamic uptake of IBLI and signifies the importance of an empirical analysis that takes into account the dynamic demand structure.

Farmers' participation in the Income Stabilisation Tool: Evidence from the apple sector in Italy

“…A large part of this literature focuses on the crop and revenue insurance market in the USA (e.g., Glauber, 2013; Mishra & Goodwin, 2006; Roznik et al, 2019; Velandia et al, 2009) and EU (e.g., Defrancesco et al, 2008; Enjolras & Sentis, 2011; Hynes & Garvey, 2009; Klimkowski, 2016; Lastra‐Bravo et al, 2015; Liesivaara & Myyrä, 2017; Meuwissen et al, 2018; Santeramo, 2018; Santeramo et al, 2016; Vanslembrouck et al, 2002; Was & Kobus, 2018). There is also an increasing interest regarding the uptake of index‐based insurance products, especially in developing countries (e.g., Bucheli et al, 2021; Jensen et al, 2018; King & Singh, 2020; Takahashi et al, 2020).…”

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“…This risk discouraged insurance uptake (Jensen et al 2018). Pastoralists purchased insurance opportunistically when they expected a drought (Jensen et al 2018) or when vegetation condition was not good (Takahashi et al 2020) rather than purchase insurance consistently over seasons.…”

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“…Another reason noted by the unwilling farmers was the payout being very small. Takahashi et al (2019) similarly noted the hesitance in joining insurance schemes again after insurance either fails to trigger sufficient payouts or is impeded. Therefore, insurance product design and the associated awareness creation should consider this to ensure sustainable interventions.…”

“…6 Among the farmers with insurance experience, 92% had indemnity insurance experience while the remaining had index insurance or both indemnity and index insurance experience. Notably, Takahashi et al (2019) argue that the propensity of buying insurance schemes is greater among users who have bought them once due to their familiarity with the product.…”