Yang, DeanGiné, Xavier2012-06-082012-06-082007-12https://hdl.handle.net/10986/7611The adoption of new agricultural technologies may be discouraged because of their inherent riskiness. This study implemented a randomized field experiment to ask whether the provision of insurance against a major source of production risk induces farmers to take out loans to invest in a new crop variety. The study sample was composed of roughly 800 maize and groundnut farmers in Malawi, where by far the dominant source of production risk is the level of rainfall. We randomly selected half of the farmers to be offered credit to purchase high-yielding hybrid maize and improved groundnut seeds for planting in the November 2006 crop season. The other half of the farmers were offered a similar credit package but were also required to purchase (at actuarially fair rates) a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall. Surprisingly, take up was lower by 13 percentage points among farmers offered insurance with the loan. Take-up was 33.0 percent for farmers who were offered the uninsured loan. There is suggestive evidence that the reduced take-up of the insured loan was due to the high cognitive cost of evaluating the insurance: insured loan take-up was positively correlated with farmer education levels. By contrast, the take-up of the uninsured loan was uncorrelated with farmer education.CC BY 3.0 IGOACCESS TO CAPITALACCESS TO CREDITACCESS TO INFORMATIONADVERTISEMENTSAGRICULTURAL ACTIVITIESAGRICULTURAL HOUSEHOLD MODELAGRICULTURAL LABORAGRICULTURAL PRODUCTIONAGRICULTURAL PRODUCTIVITYAVERAGE YIELDSBANK POLICYBANKSBEHAVIORAL ECONOMICSBORROWERBORROWINGCOLLATERALCOMMODITYCOMMODITY RISK MANAGEMENTCONSUMERCONSUMER RESEARCHCONSUMERSCONSUMPTION SMOOTHINGCORNCOTTONCREDIT CONSTRAINTSCREDIT MARKETCREDIT MARKET FAILURECREDIT MARKETSCREDIT PROGRAMCROPCROP LOSSCROP PRODUCTIONCROP VARIETIESCROPPINGCROPSCULTIVATIONCULTIVATION PRACTICESDEBTDEFAULT COSTSDEMAND FOR CREDITDEPOSITDEVELOPING COUNTRIESDROUGHTDUMMY VARIABLEDUMMY VARIABLESECONOMIC ANALYSISECONOMIC DEVELOPMENTEDUCATION LEVELSEQUIPMENTEXPENDITUREFAIR PRICEFARMFARM INCOMEFARMERFARMERSFARMINGFARMSFERTILIZERFERTILIZER USEFIELD TRIALSFINANCIAL CONSTRAINTSFINANCIAL INNOVATIONSFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL PRODUCTSFINANCIAL SUPPORTFUTURE CREDITGENDERGOVERNMENT INTERVENTIONSGREEN REVOLUTIONGROUNDNUTGROUNDNUT PRODUCTIONHOLDINGSHOUSEHOLD INCOMEHOUSEHOLDSHUMAN CAPITALHYBRID SEEDHYBRID SEEDSINCOMEINCOME TAXINCOME VARIABILITYINCOME-GENERATING ACTIVITIESINCOMESINFORMATIONAL ASYMMETRIESINNOVATIONINSURANCEINSURANCE COMPANIESINSURANCE COMPANYINSURANCE CONTRACTINSURANCE MARKETSINSURANCE POLICIESINSURANCE POLICYINSURANCE PREMIUMINSURANCE PRODUCTINTEREST PAYMENTINTEREST RATEINTERNATIONAL BANKINTERNATIONAL FOOD POLICY RESEARCH INSTITUTEINVESTINGIRAIRA CONTRIBUTIONSLABOR DEMANDLABOR MARKETSLACK OF ACCESSLAND OWNERSHIPLANDHOLDERSLENDERLENDERSLIABILITYLIGHTINGLIMITED ACCESSLIQUID WEALTHLOANLOAN AMOUNTLOAN PRODUCTLOAN TERMSLOANS TO FARMERSMAIZEMAIZE PRODUCTIONMARKETINGMARKETING EFFORTSMICROFINANCEMICROFINANCE INSTITUTIONSMIDDLE-INCOME FAMILIESNEGATIVE INCOME SHOCKNONPAYMENTPENSIONPENSION INCOMEPEOPLESPESTICIDEPLANTINGPOLITICAL ECONOMYPOOR FARMERPOSITIVE COEFFICIENTSPREMIUM PAYMENTPROBABILITIESPROBABILITYPRODUCTIVITYPUBLIC POLICYREMITTANCESREPAYMENTRESEARCH ASSISTANCERETURNRETURNSRISK AVERSE BORROWERSRISK AVERSIONRISK MANAGEMENTRISK TOLERANCERURAL FINANCESALESAVERSSAVING INCENTIVESSEEDSSMALLHOLDERSMALLHOLDER FARMERSSOCIOECONOMIC STATUSSOURCE OF INCOMESOURCES OF INCOMESOWINGSTANDARD DEBT CONTRACTTAKE-UP RATETAKE-UP RATESTAX CODETECHNICAL ASSISTANCETRADITIONAL SEEDSVALUABLEVALUATIONVILLAGESWAGESWATER SOURCEWEALTH EFFECTSYIELDSMicrodata SetWorld Bank10.1596/1813-9450-4425