Unlocking Productivity: Why Low-Income Farmers Value Loans Over Insurance
Index insurance for low income farmers is often used to increase productivity rather than reduce risk. This is because farmers near the poverty threshold prioritize avoiding falling into poverty over minimizing income variance. When income is low, farmers become less risk averse and are less willing to trade expected income for reduced variance. Therefore, it may be more beneficial for implementers to focus on using insurance to boost productivity rather than solely reducing risk.