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Cole et al (2012)
Financial engineering offers the potential to significantly reduce the consumption fluctuations faced by individuals, households, and firms. Yet much of this potential remains unfulfilled. This paper studies the adoption of an innovative rainfall insurance product designed to compensate low-income Indian farmers in the event of insufficient rainfall during the primary monsoon season. We first document relatively low adoption of this new risk management product: Only 5-10 percent of households purchase the insurance, even though they overwhelmingly cite rainfall variability as their most significant source of risk. We then conduct a series of randomized field experiments to test theories of why product adoption is so low. Insurance purchase is sensitive to price, with an estimated extensive price elasticity of demand ranging between -.66 and -0.88. Credit constraints, identified through the provision of random liquidity shocks, are a key barrier to participation, a result also consistent with household self-reports. Several experiments find that trust plays an important role in the decision to purchase insurance. We find mixed evidence that subtle psychological manipulations affect purchases and no evidence that modest attempts at financial education change households' decisions to participate. Based on our experimental results, we suggest preliminary lessons for improving the design of household risk management contracts.
Intervention settings: Rural: Andhra Pradesh and Gujarat.
Intervention description: Rainfall insurance offered to farmers at different discounted prices.
Sample: AP: 2,547 land-owning households; Gujarat: 1,500 households from 100 villages, in which the participating NGO marketing the rainfall insurance operated and located within 30 kms of a rainfall station. Gender included in the model but results not reported.
Findings: Take up strongly related to price, with estimated price elasticities ranging from -0.66 to -0.88. However, take-up was low (less than 50%) even when the price was heavily discounted. Demand appears to be constrained by liquidity.
Are Poor Slum-dwellers Willing to Pay for Formal Land Title? Evidence from Dar es SalaamAli et al (2012)
Intervention description: Land titling.
Sample: 1,059 households (22% women-headed).
Findings: Dissemination activities had positive impact on listing of female co-owners. Demand for a Certificate Right of Occupancy among urban slum dwellers was high relative to income and to cost of other options.
Between 1996 and 2003, the Peruvian government issued property titles to over 1.2 million urban households, the largest titling program targeted at urban squatters in the developing world. This paper examines the labor market effects of increases in tenure security resulting from the program. To isolate the causal role of ownership rights, I make use of differences across regions induced by the timing ofthe program and differences across target populations in level of preprogram ownership rights. My estimates suggest that titling results in a substantial increase in labor hours, a shift in labor supply away from work at home to work in the outside market, and substitution of adult for child labor.
Intervention description: Land titling.
Methodology: Intent to treat analysis with OLS and instrumental variable regressions with 1997 and 2000 household surveys (LSMS) with panel features.
Sample: 2,750 households (24% female-headed).
Findings: Increasing tenure security from the issuance of property titles to urban households enabled former squatters, especially men, to work more hours in the labor market instead of staying at home to guard their property with a resulting increase in income. Although the effect was positive for women, it was substantially larger for men.
Gaurav, Cole and Tobacman (2011)
Recent financial liberalization in emerging economies has led to the rapid introduction of new financial products. Lack of experience with financial products, low levels of education, and low financial literacy may slow adoption of these products. This article reports on a field experiment that offered an innovative new financial product, rainfall insurance, to 600 small-scale farmers in India. A customized financial literacy and insurance education module communicating the need for personal financial management and the usefulness of formal hedging of agricultural production risks was offered to randomly selected farmers in Gujarat, India. The authors evaluate the effect of the financial literacy training and three marketing treatments using a randomized controlled trial. Financial education has a positive and significant effect on rainfall insurance adoption, increasing take-up from 8% to 16%. Only one marketing intervention, the money-back guarantee, has a consistent and large effect on farmers' purchase decisions. This guarantee, comparable to a price reduction of approximately 40%, increases demand by seven percentage points.
Intervention settings: Rural: Gujarat.
Intervention description: Farmers offered rainfall insurance, with some offered a money-back guarantee (equivalent to a 60% price discount). Half of the treatment group was also given financial literacy training in two three-hour sessions.
Sample: Small-scale land-owning farmers from rainfed villages in coastal districts; 2/3 of sample own less than 4 hectares of land. Gender included in model but gender-specific effects not reported.
Findings: The training increased the take up by 8.1% (compared to a base take-up rate of 8%). The 60% price discount increases the base take-up rate by 6.9 percentage points.
The miracle of microfinance? Evidence from a randomized evaluationBanerjee et al (2010)
Intervention settings: Urban: Hyderabad slums
Intervention description: MFI branches were opened in 52 randomly selected urban slums.
Findings: Expenditure on durable goods and the number of new businesses increased significantly in treated areas. No effect on household expenditure per equivalent adult or women's decision-making role within the household after 15-18 months.