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Wageningen University (2017)

Loss and ambiguity aversion and the willingness to pay for index insurance : experimental evidence from rural Kenya

Slingerland, Edwin

Titre : Loss and ambiguity aversion and the willingness to pay for index insurance : experimental evidence from rural Kenya

Auteur : Slingerland, Edwin

Université de soutenance : Wageningen University

Grade : Master of Science (MS) 2017

Résumé
This study looks at the impact ambiguity attitudes and loss aversion might have on willingness-to-pay for index insurance among 13 farmer groups in rural Kenyan farmers. Basis risk is a source of ambiguity which is considered a barrier for index insurance uptake. In a framed field experiment, we test whether a rebate insurance, where the premium payment is no longer certain but probable, increases WTP. We find no significant difference in WTP for the two designs. We do find widespread insensitivity to ambiguity generated likelihoods which significantly reduces WTP for index insurance due to overweighting the probability of basis risk. Surprisingly we find that the negative effect on WTP of pessimistic people is significantly larger for the rebate insurance than for the traditional insurance. Our findings are in line with Prospect Theory and contribute to understanding how farmers’ perceive index insurance designs, underlining the need to experiment with alternative insurance designs taking into account ambiguity attitudes and with less basis risk.

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Page publiée le 12 avril 2018