Mußhoff, Oliver; Hirschauer, Norbert; Grüner, Sven; Pielsticker,
Stefan (2014) : Der Einfluss begrenzter Rationalität auf die Verbreitung von Wetterindexversicherungen: Ergebnisse eines internetbasierten Experiments mit Landwirten, Diskussionspapiere, Department für Agrarökonomie und Rurale Entwicklung, No. 1409
ISSN 1865-2697
https://www.econstor.eu/bitstream/10419/102948/1/799164348.pdf



Abstract
Weather index-based insurance is an innovative risk management instrument that, as compared with conventional insurance, causes low administration and regulation costs. Moreover, index-based insurance is neither riddled by moral hazard nor adverse selection problems. Few farmers, however, use weather index-based insurance at present. With this in mind, we focus on the question whether farmers’missing willingness to adopt this innovation may be caused by bounded rationality. Our study, which is based on an extra-laboratory experiment in the form of a multiperiod, single-person business simulation game with farmers, provided three central results: First, an increase of the costs (loading) of the insurance reduced farmers’ demand for weather index insurance. Second, explicitly informing farmers about the loading (as a percentage of the total premium) reduced demand as well. This may be associated with 'inequity aversion' and taken as an indication that farmers refrain even from a beneficial transaction if they have the feeling that the business partner (here: the insurance provider) earns (too much) money with it. Third, keeping the costs of the insurance constant but communicating to farmers that it had been subsidized increased their demand. This indicates that farmers take subsidies as signaling profitable ways of action without carrying out farm-level analyses of their relative economic competitiveness.



Oliver Musshoff (oliver.musshoff@agr.uni-goettingen.de), Norbert Hirschauer (norbert.hirschauer@landw.uni-halle.de), Sven Grüner and Stefan Pielsticker
Authors registered in the RePEc Author Service: Sven Gruener (sven.gruener@landw.uni-halle.de)