Date of Graduation

Spring 5-21-2021

Document Type

Thesis

Degree Name

Master of Science in International and Development Economics (MSIDEC)

College/School

College of Arts and Sciences

Department/Program

Economics

First Advisor

Andrew Hobbs

Second Advisor

Nathaniel Jensen

Abstract

Index insurance has a huge potential to increase the income of households in developing countries by shielding them against various shocks and by facilitating technology adoption. Despite this theoretical promise, however, the uptake of insurance has turned out to be disappointingly low. One of the key barriers in the adoption of this financial technology has been learning difficulty. Index insurance can be considered a relatively complex product especially in the context of low financial literacy in developing countries. Despite the relevance of learning in the diffusion of the product, however, previous studies on the subject have been quite limited. This study attempts to address this gap by testing the effect of two learning methods, a 9min video and a computer-simulated insurance game. The study relies on experimental data from Samburu County of Kenya on the adoption of IBLI (Index-Based Index Livestock Insurance) that insures against drought for pastoral households. The two training methods, or treatments, are tested on 1743 households. The main finding of the study is that both types of interventions could enhance the uptake of index insurance. The insurance game increases the uptake of index insurance provided that it is framed as insurance for household rather than for livestock. The effect is a 3-4 percentage point (pp) increase in uptake and only appears for sales windows right after the treatment. The video intervention has opposite effects depending on the gender of the treated household head. For male-headed households, the effect is a 2-3 pp increase in uptake while for females, it is about a 6 pp decrease in uptake. In general, the results suggest that the insurance game has a stronger and consistent effect on the uptake than index insurance.

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