Demand and impact of crop microinsurance in India

This thesis presents an analysis of the demand and impact of crop microinsurance in India. The study is based on extensive fieldwork and primary data collection from two field sites in India. The first empirical chapter examines the impact of crop microinsurance on output. Accounting for the endogeneity of insurance investment, this chapter uses a two-step instrumental variables approach to assess the impact of insurance on yield for two varieties of paddy. The assessment is based on secondary district level data and primary household survey data. The findings indicate that impact of insurance on yield is not homogeneous across crops. It is based on the flexibility of the crop’s input requirement structure. The second chapter explores the impact of crop insurance on the use of inputs such as seeds, fertilizers, pesticides, irrigation and labour for paddy varieties. This chapter is a significant addition to the existing small pool of literature on the impacts of crop insurance on a range of inputs. Since both insurance and input decisions are ex-ante, a simultaneous equations model is employed to assess impacts. Results show that the impact of crop microinsurance varies based on the type of input, crop under consideration and its significance in the income portfolio of a farmer. The final chapter assesses the demand for crop microinsurance using a contingent valuation experiment on turmeric farmers. This is a first of its kind attempt to delineate the willingness to join (WTJ) from the amount of willingness to pay (WTP) for crop insurance policies. Results based on a Heckman selection model, indicate that while the WTJ is influenced by risk attitudes and product literacy, the amount of WTP is driven by a careful assessment of the other risk coping avenues available to a household. Only the ‘residual’ risk is passed on to insurance.