Preferences for Crop Insurance Programs among Smallholder Cocoa Farmers in Ghana
Final Report Abstract
Uninsured risks present a major development challenge to large number of households in sub-Saharan Africa. Innovative ways of addressing these risks have been of paramount importance to researchers and policy makers. Agricultural insurance is a way of transferring these risks. However, agricultural insurance uptake have been far below expectation, and this has attracted significant attention from researchers and policy makers. The current research project sought to assess preferences for crop insurance programs, and investigate the drivers of the demand for these programs. Within the research project, we developed a theoretical model to examine the relationship between risks and ambiguity preferences, liquidity constraints, input use and the demand for insurance programs. Furthermore, we developed a model to show the relationship between time preferences and insurance demand. On the preferences for crop insurance products, the findings indicate that premium levels, the mode and length of indemnity payment to influence farmers’ preferences for crop insurance products. The study also finds evidence that not only does credit constraints limit input use, but that it plays relevant role in farmers’ preferences for crop insurance attributes. Our analysis show that risks and ambiguity, and input use tend to play significant roles in crop insurance uptake decisions. In particular, while risk aversion increases the demand for crop insurance, ambiguity aversion tend to decrease the demand for it. We also find farmers who apply more fertilizer to be willing to take up the insurance programs. Given that the benefits associated with a risk increasing input is contingent on a random state of nature, our findings are quite intuitive. The study also finds evidence of time preferences having significant impact on crop insurance programs, with short-run discount rates declining in insurance demand, while the longrun enhanced demand. The findings from the various studies do have policy implications. For example, to address the perverse liquidity constraints, it is relevant for policy makers to institute policies with financial institutions to make digital financial services easily available. Overall, the findings show that promotion of crop insurance programs can help farmers transfer income between states of nature, which then increase their investments in farm inputs associated with higher productivity. The higher returns obtained through increased investments can help farm households improve their food and nutrition security.
Publications
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(2019). Liquidity constraints, risk preferences and farmers’ willingness to participate in crop insurance programs in Ghana. Allied Social Sciences Association (ASSA) Annual Meeting, Atlanta, Georgia, January 2019
Abdulai, A., Goetz, R., Ali, W. and Owusu, V.
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(2020). Informing Food Security and Nutrition Strategies in sub-Saharan African Countries: An Overview and Empirical Analysis. Applied Economic Perspectives and Policy
Abdul-Mumin, Y. and Abdulai, A.
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(2020). Recent Advances in the Analyses of Demand for Agricultural Insurance in Developing and Emerging Countries. Annual Review of Resource Economics, 12. 411-430
Ali, W., Abdulai, A. and Ashok, M. K.
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(2021). Preferences for crop insurance attributes among cocoa farmers in Ghana. Journal of Agribusiness in Developing and Emerging Economies
Owusu, V., Abdulai, A. and Ali, W.
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(2021). Risk, ambiguity and willingness to participate in crop insurance programs: Evidence from a field experiment. Australian Journal of Agricultural and Resource Economics, 65(1), 679-703
Ali, W., Abdulai, A., Goetz, R. and Owusu, V.
