For decades, companies, aid organizations and governments in developing countries have tried to increase the numbers of farmers who insure their crops. However, farmers’ adoption remains stubbornly low. Lorenzo Casaburi from the Department of Economics at the UZH and his co-author Jack Willis identified a simple solution to increase the take up rates of these insurance. They found that, when it comes to crop insurance, timings and what economists call time preferences are crucial. In standard insurance products, premiums are paid at a time when farmers are cash strapped. In addition, as the potential benefit from the insurance, i.e. the payout in case of a bad harvest, lies in the future, its value is mentally discounted. This potential money in the future seems worth less than the price it would cost today. The farmer decides that it is therefore not worth the investment.
Increasing Crop Insurances Adoption in Developing Countries
Farmers in developing countries often rely heavily on their yearly harvest to feed their families. A bad crop can have severe consequences for their livelihood. Despite the significant advantages crop insurances would offer in alleviating this risk, only a small percentage of farmers insure their crops. A simple but effective solution tested by researchers from the University of Zurich has increased insurance adoption to over 70 percent.
For decades, companies, aid organizations and governments in developing countries have tried to increase the numbers of farmers who insure their crops. However, farmers’ adoption remains stubbornly low. Lorenzo Casaburi from the Department of Economics at the UZH and his co-author Jack Willis identified a simple solution to increase the take up rates of these insurance. They found that, when it comes to crop insurance, timings and what economists call time preferences are crucial. In standard insurance products, premiums are paid at a time when farmers are cash strapped. In addition, as the potential benefit from the insurance, i.e. the payout in case of a bad harvest, lies in the future, its value is mentally discounted. This potential money in the future seems worth less than the price it would cost today. The farmer decides that it is therefore not worth the investment.
For decades, companies, aid organizations and governments in developing countries have tried to increase the numbers of farmers who insure their crops. However, farmers’ adoption remains stubbornly low. Lorenzo Casaburi from the Department of Economics at the UZH and his co-author Jack Willis identified a simple solution to increase the take up rates of these insurance. They found that, when it comes to crop insurance, timings and what economists call time preferences are crucial. In standard insurance products, premiums are paid at a time when farmers are cash strapped. In addition, as the potential benefit from the insurance, i.e. the payout in case of a bad harvest, lies in the future, its value is mentally discounted. This potential money in the future seems worth less than the price it would cost today. The farmer decides that it is therefore not worth the investment.
Advert