Essays on the Interaction between Index Insurance and Rural Credit Markets.
详细信息
文摘
This dissertation theoretically and empirically investigates the interaction between index insurance and rural credit markets and the impact of the interaction on technology adoption. It answers two questions: 1) first,how index insurance affects borrowers moral hazard behavior in rural credit markets； and 2) second,how index insurance affects technology adoptions of smallholder farmers by interlinking with loan contracts. To answer these two questions,I first theoretically explore the impact of index insurance on borrowers credit diversion behavior in rural credit markets. Credit diversion is a type of moral hazard behavior,which occurs when borrowers divert production loans away from productive investment towards consumption. I build a theoretical model to show that risk-averse farmers are more likely to divert credit away from risky projects,because credit diversion serves as a form of self-insurance in low collateral environments. The introduction of index insurance reduces the incentives for credit diversion by raising the borrowers benefit from risky investments but not from credit diversion. I then empirically test the above theoretical predictions using a framed field experiment. The experiment game was played with 450 smallholder households in northern China. The experiment results show that when insurance was not available,farmers who chose to divert credit in the game were more risk-averse than those who chose not to. The availability of index insurance option in the game reduced credit diversion by 75%,on average. Econometric analysis shows this impact is heterogeneous across subjects with varying risk preference,which is consistent with theoretical predictions. Finally,I explore the impact of index insurance on technology adoption by interlinking with loan contracts. Insurance and loan contracts are interlinked in such a way that loan contract terms,such as interest rates,are endogenously determined by lenders return,which is affected by borrowers purchase of insurance. The analysis theoretically explores the interlinkage of index insurance with credit and compares the interlinked contracts with standalone contracts,focusing specifically on the impact on farmers uptakes of high-yielding technology. It shows that uptake of improved technology will be low in absence of efforts to interlink credit and insurance. The analysis also shows that the way interlinkage will work depends fundamentally on the risk environment of agricultural production and the collateral environment of credit markets. The findings of this dissertation provide important policy implications for the design of financial programs to boost small farm productivity. The results suggest that index insurance can serve as an effective substitute for collateral to,at least partially,mitigate the problems of moral hazard and covariant risks faced by lenders. Hence,index insurance can help relax credit constraints of the poor who have a lack of collateral assets or who fear losing their collateral assets,which can significantly improve their adoptions of high-yielding but costly projects.