Journal
AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS
Volume 101, Issue 3, Pages 651-671Publisher
WILEY
DOI: 10.1093/ajae/aay061
Keywords
Insurance; consumption smoothing; asset smoothing; poverty; Kenya
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Funding
- United States Agency for International Development through the BASIS Assets and Market Access Innovation Lab grant [EDH-A-00-06-0003-00]
- World Bank's Trust Fund for Environmentally and Socially Sustainable Development [7156906]
- United Kingdom Department for International Development through FSD Trust grant [SWD/Weather/43/2009]
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To cope with shocks, poor households with inadequate access to financial markets can sell assets to smooth consumption and, or reduce consumption to protect assets. Both coping strategies can be economically costly and contribute to the transmission of poverty, yet limited evidence exists regarding the effectiveness of insurance to mitigate these costs in risk-prone developing economies. Utilizing data from an RCT in rural Kenya, this paper estimates that on average an innovative microinsurance scheme reduces both forms of costly coping. Threshold econometrics grounded in theory reveal a more complex pattern: (i) wealthier households primarily cope by selling assets, and insurance makes them 96 percentage points less likely to sell assets following a shock; (ii) poorer households cope primarily by cutting food consumption, and insurance reduces by 49 percentage points their reliance on this strategy.
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