Impact Insurance Research Paper #13: Risk preferences and demand for insurance under price uncertainty

Research Paper #13 analyses the willingness to pay of Côte d'Ivoire cocoa farmers for very affordable insurance and in which extent risk aversion determines demand. The methodology employed is an experimental gambling approach with real pay-offs and a contingent valuation method to measure the farmers willingness to pay for the insurance. The findings reveal a relatively high level of risk aversion among Ivorian cocoa farmers with more than 45 percent of the households exhibiting severe to extreme risk aversion. Considerable interest in minimum price insurance has been found with 66 percent of farmers responding positively to the interest question. It appears that farmers' demand for insurance is affected by a range of independent variables like household size, farming experience, monetary value of livestock, share of cocoa in total income, age of cocoa farm, farm size and social network as coping mechanism. More importantly, the study discovers a highly significant effect of risk aversion on farmers' insurance take-up decisions. In particular, high risk aversion was unexpectedly found to inhibit the demand for insurance. Finally, the analysis reveals that the actual premium farmers would actually be willing to pay to be covered is relatively low in spite of a large percentage of farmers stating their interest in the product.