Paper: Does Index Insurance Crowd In or Crowd Out Informal Risk Sharing? Evidence from Rural Ethiopia

This study explores how the introduction of a formal index insurance product affects informal risk-sharing among pastoralists in southern Ethiopia. Using detailed social networks data, randomized incentives to purchase the insurance product, and hypothetical informal transfer data that mirror the existing customary arrangements, the researchers find that respondents’ own formal insurance uptake has no significant effect on their willingness to share risk through customary institutions. It also finds weak evidence that a randomly matched peer’s insurance uptake positively influences respondents’ willingness to make informal transfers to that match. Overall, these results imply that in this context index insurance does not crowd out informal risk-sharing mediated by social networks.

Read the full paper