Does bundling crop insurance with certified seeds crowd-in investments? Experimental evidence from Kenya

• Published in: Journal of economic behavior & organization 2020-12, Vol.180, p.744-757
• Main Authors: Bulte, Erwin, Cecchi, Francesco, Lensink, Robert, Marr, Ana, van Asseldonk, Marcel
• Format: Article
• Language: English
• Subjects: Farm management; Index and indemnity-based insurance; Input bundling; Subsidized input
• ISSN: 0167-2681; 1879-1751
• DOI: 10.1016/j.jebo.2019.07.006

We use a randomised experiment in Kenya to analyse how smallholder farmers respond to receiving a free hybrid crop insurance product, conditional on purchasing certified seeds. We find that farmers increase effort—increasing total investments and taking more land in production. In addition to adopting more certified seeds, they also invest more in complementary inputs such as fertilizer and hired-in farm-machinery and non-farm labour. We find limited evidence of a change in farming intensity. For example, there is no evidence of ‘crowding-out’ of effort or inputs on a per-hectare basis, even if the indemnity-based component of the insurance product potentially gives rise to asymmetric information problems (moral hazard). We also document that ex post willingness to pay for the insurance product has increased for the treatment group. This suggests that learning about the benefits of (subsidized) insurance outweighs any anchoring effects on the zero price during the pilot study.