While index-based microinsurance has attracted considerable attention, uptake rates have been weak in many low-income countries. We explore the purchase patterns of index-based livestock insurance in southern Ethiopia, focusing on the role of accurate product comprehension and price. We find that randomly distributed learning kits improve subjects' knowledge of the products; however, we do not find strong evidence that the improved knowledge per se causes greater insurance uptake. We also find that reduced price due to randomly distributed discount coupons has an immediate, positive impact on uptake, without dampening subsequent period demand due to reference-dependence associated with price anchoring effects.

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We study how the introduction of a formal index insurance product affects informal risk‐sharing among pastoralists in southern Ethiopia. Using detailed social networks data, randomized incentives to purchase the insurance product, and hypothetical informal transfer data that mirror the existing customary arrangements, we find respondents’ own formal insurance uptake has no significant effect on their willingness to share risk through customary institutions. We also find weak evidence that a randomly matched peer's insurance uptake positively influences respondents’ willingness to make informal transfers to that match. Overall, our results imply that in this context index insurance does not crowd out informal risk‐sharing mediated by social networks.

Progressively targeted cash transfers remain the dominant policy response to chronic poverty in developing countries. But are there alternative social protection policies that might have larger poverty impacts over time for the same public expenditure? To explore this question, this paper develops a dynamic stochastic model of of consumption and asset accumulation by households that confront a non-convex production technology and face missing financial markets. The model demonstrates that a hybrid social protection policy, which devotes resources to funding "state of the world contingent transfers" (SWCTs) to vulnerable, but non-poor households in the wake of negative shocks, can result in lower rates of poverty in the medium term than does a conventional cash transfer policy. We also explore the prospects for using subsidized index insurance as a way to implement SWCTs and find that an insurance-based hybrid policy can result in lower total public expenditures than a conventional cash transfer social protection program.

Abstract