In this study, using data from lab-in-the-field experiment, we explore whether the introduction of weather index insurance crowds in or crowds out social capital in northern Ethiopia. We use contributions in the public good game as a measure of social capital. We find that weather index insurance crowds out social capital. The free-riding problem created by the positive externality of weather index insurance and development of self-sufficiency behaviour are found to be the causal mechanisms behind the crowding out phenomenon. Our results indicate that formal insurance mechanisms do not occur in a vacuum and may have unintended effects. Hence, this study suggests that novel insurance product design and marketing strategies should be used to ameliorate such unintended effects.
|Place of Publication||Maastricht|
|Publisher||UNU-MERIT working papers|
|Number of pages||35|
|Publication status||Published - 2018|
|Series||UNU-MERIT Working Papers|
- c93 - Field Experiments
- g22 - "Insurance; Insurance Companies"
- h41 - Public Goods
- o17 - "Formal and Informal Sectors; Shadow Economy; Institutional Arrangements"
- weather index insurance
- social capital
- public good game
Nigus, H. Y., Nillesen, E., & Mohnen, P. (2018). The effect of weather index insurance on social capital: Experimental evidence from Ethiopia. UNU-MERIT working papers. UNU-MERIT Working Papers, No. 2018-007 https://www.merit.unu.edu/publications/working-papers/abstract/?id=7633