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The World Bank Economic Review Advance Access originally published online on October 22, 2008
The World Bank Economic Review 2008 22(3):539-566; doi:10.1093/wber/lhn015
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© The Author 2008. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

Patterns of Rainfall Insurance Participation in Rural India

Xavier Giné, Robert Townsend, and James Vickery

Xavier Giné is an economist in the Development Research Group at the World Bank; his email address is xgine{at}worldbank.org
Robert Townsend is the Charles E. Merriam Distinguished Service Professor of Economics at the University of Chicago; his email address is rtownsen{at}uchicago.edu
James Vickery (corresponding author) is an economist at the Federal Reserve Bank of New York;

Correspondence: his email address is james.vickery{at}ny.frb.org

JEL Codes: O10, O16, G2, G22

Take-up of an innovative rainfall insurance policy offered to smallholder farmers in rural India decreases with basis risk between insurance payouts and income fluctuations, increases with household wealth, and decreases with binding credit constraints. These results are consistent with the predictions of a simple neoclassical model with borrowing constraints. Other patterns are less consistent with the benchmark model. For example, participation in village networks and measures of familiarity with the insurance vendor are strongly correlated with insurance take-up decisions, and risk-averse households are less, not more, likely to purchase insurance. These results may reflect household uncertainty about the product, given their limited experience with it.


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