Informal Risk Sharing, Index Insurance and Risk-Taking in Developing Countries

Abstract

This paper presents preliminary findings from a research project that examines the interaction between informal risk sharing, index insurance and risk-taking. We have randomized rainfall insurance contracts offered to cultivating and landless households in a set of Indian villages where pre-existing census data on caste networks allows us to characterize the nature and extent of informal risk sharing. In a series of papers, we study (a) how informal risk sharing mediates the demand for index insurance, (b) whether index insurance or informal indemnification allows farmers to invest in risky technologies, and (c) the general equilibrium effects of offering insurance contracts to cultivators or to agricultural laborers