Townsend, RobertGine, XavierVickery, James2012-06-112012-06-112007-11https://hdl.handle.net/10986/7646This paper describes the contract design and institutional features of an innovative rainfall insurance policy offered to smallholder farmers in rural India, and presents preliminary evidence on the determinants of insurance participation. Insurance takeup is found to be decreasing in basis risk between insurance payouts and income fluctuations, increasing in household wealth and decreasing in the extent to which credit constraints bind. These results match with predictions of a simple neoclassical model appended with borrowing constraints. Other patterns are less consistent with the "benchmark" model; namely, participation in village networks and measures of familiarity with the insurance vendor are strongly correlated with insurance takeup decisions, and risk-averse households are found to be less, not more, likely to purchase insurance. We suggest that these results reflect household uncertainty about the product itself, given their limited experience with it.CC BY 3.0 IGOACCESS TO CREDITACCOUNTINGACCURATE ESTIMATEADDITIONAL INCOMEADMINISTRATIVE CHARGEADMINISTRATIVE COSTSADMINISTRATIVE RECORDSAGENTSAGRICULTURAL ECONOMICSAGRICULTURAL INCOMEAGRICULTURAL INSURANCEAGRICULTURAL SECTORASSET MARKETSASYMMETRIC INFORMATIONBANK ACCOUNTBANK FEESBASIS RISKBIDBORROWERBORROWINGBUSINESS SCHOOLBUYERBUYERSCALCULATIONCALCULATIONSCOLLATERALCOMMODITYCOMMODITY PRICECONSUMERCONSUMPTION SMOOTHINGCONTRACT DESIGNCOVERAGECREDIT AVAILABILITYCREDIT CONSTRAINTSCREDIT INSTITUTIONCREDIT OUTSTANDINGCREDIT PRODUCTSCREDIT RATIONINGCREDIT WORTHINESSCROP FAILURECROP INSURANCECROP INSURANCE SCHEMECROP LOANCROP LOANSDEBTDEBTORDEFAULTSDEGREE OF RISKDEPOSITSDEVELOPING COUNTRIESDISCOUNT RATEDISCOUNT RATESDROUGHTDUMMY VARIABLEDUMMY VARIABLESEDUCATION LEVELEQUILIBRIUM MODELSEXCHANGE RATEEXPENDITUREEXPENDITURESFAMILY MEMBERSFARMERFEDERAL RESERVEFEDERAL RESERVE BANKFEDERAL RESERVE BANK OF NEW YORKFINANCIAL CONSTRAINTSFINANCIAL INNOVATIONSFINANCIAL INSTITUTIONFINANCIAL PRODUCTFINANCIAL SERVICESFINANCIAL SYSTEMSFIRE INSURANCEFIXED COSTSFORMAL EDUCATIONFORMAL FINANCIAL INSTITUTIONFORMAL FINANCIAL INSTITUTIONSFUTURE INCOMEGENDERGOVERNMENT ASSISTANCEGOVERNMENT CROP INSURANCEGOVERNMENT SUBSIDIESGROSS REVENUEGROUP LENDINGHEALTH INSURANCEHIGH INTEREST RATESHOUSEHOLD INCOMEHOUSEHOLD WEALTHHOUSEHOLDSIMPERFECT INFORMATIONINCOMEINCOME SHOCKSINCOME SMOOTHINGINCOME VOLATILITYINSURANCEINSURANCE BUYERSINSURANCE CLAIMSINSURANCE CONTRACTSINSURANCE EXPENDITURESINSURANCE MARKETINSURANCE MARKETSINSURANCE POLICIESINSURANCE POLICYINSURANCE PRODUCTINSURANCE SCHEMEINTEREST RATEINTEREST RATESINTERNATIONAL BANKJOB LOSSLACK OF COLLATERALLACK OF CREDITLANDOWNERLIFE INSURANCELIQUID ASSETSLIQUID SAVINGSLOANLOAN APPLICATIONSLOCAL AREA BANKLOCAL FINANCIAL INSTITUTIONSLUMP SUMMARKET VALUEMARKETINGMICRO-CREDITMICRO-INSURANCEMICROCREDITMICROFINANCEMICROFINANCE INSTITUTIONMICROFINANCE LOANSMICROINSURANCEMIGRATIONMITIGATIONMORAL HAZARDOUTSTANDING CREDITPENETRATION RATEPENSIONSPOLICY DESIGNPOLICYHOLDERSPREMIUM RATEPREMIUMSPRICE CHANGESPROBABILITIESPROBABILITYPROGRAM COSTSPROGRAMSPURCHASESREINSURERSRESERVE BANKRETURNRETURNSREVOLVING FUNDSRISK AVERSIONRISK SHARINGSALESSALES REVENUESAVINGSSELF-EMPLOYMENTSMALL BUSINESSSMALL BUSINESS OWNERSMALLHOLDERSMALLHOLDER FARMERSSMALLHOLDERSSOCIAL DEVELOPMENTSOCIAL NETWORKSTAXTECHNICAL ASSISTANCEVILLAGEVILLAGESVULNERABLE HOUSEHOLDSWAGESWorld Bank10.1596/1813-9450-4408