Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model.
Microinsurance is promoted as a valuable instrument for low-income households to buffer financial losses due to health or climate-related risks. However, apart from direct positive effects, such formal insurance schemes can have unintended side effects when insured households lower their contributio...
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| Format: | Article |
| Language: | English |
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Public Library of Science (PLoS)
2021-01-01
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| Series: | PLoS ONE |
| Online Access: | https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0248757&type=printable |
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| author | Meike Will Jürgen Groeneveld Karin Frank Birgit Müller |
| author_facet | Meike Will Jürgen Groeneveld Karin Frank Birgit Müller |
| author_sort | Meike Will |
| collection | DOAJ |
| description | Microinsurance is promoted as a valuable instrument for low-income households to buffer financial losses due to health or climate-related risks. However, apart from direct positive effects, such formal insurance schemes can have unintended side effects when insured households lower their contribution to traditional informal arrangements where risk is shared through private monetary support. Using a stylized agent-based model, we assess impacts of microinsurance on the resilience of those smallholders in a social network who cannot afford this financial instrument. We explicitly include the decision behavior regarding informal transfers. We find that the introduction of formal insurance can have negative side effects even if insured households are willing to contribute to informal risk arrangements. However, when many households are simultaneously affected by a shock, e.g. by droughts or floods, formal insurance is a valuable addition to informal risk-sharing. By explicitly taking into account long-term effects of short-term transfer decisions, our study allows to complement existing empirical research. The model results underline that new insurance programs have to be developed in close alignment with established risk-coping instruments. Only then can they be effective without weakening functioning aspects of informal risk management, which could lead to increased poverty. |
| format | Article |
| id | doaj-art-481127362eec4036bd4ce9a401bfd9b9 |
| institution | DOAJ |
| issn | 1932-6203 |
| language | English |
| publishDate | 2021-01-01 |
| publisher | Public Library of Science (PLoS) |
| record_format | Article |
| series | PLoS ONE |
| spelling | doaj-art-481127362eec4036bd4ce9a401bfd9b92025-08-20T02:54:30ZengPublic Library of Science (PLoS)PLoS ONE1932-62032021-01-01163e024875710.1371/journal.pone.0248757Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model.Meike WillJürgen GroeneveldKarin FrankBirgit MüllerMicroinsurance is promoted as a valuable instrument for low-income households to buffer financial losses due to health or climate-related risks. However, apart from direct positive effects, such formal insurance schemes can have unintended side effects when insured households lower their contribution to traditional informal arrangements where risk is shared through private monetary support. Using a stylized agent-based model, we assess impacts of microinsurance on the resilience of those smallholders in a social network who cannot afford this financial instrument. We explicitly include the decision behavior regarding informal transfers. We find that the introduction of formal insurance can have negative side effects even if insured households are willing to contribute to informal risk arrangements. However, when many households are simultaneously affected by a shock, e.g. by droughts or floods, formal insurance is a valuable addition to informal risk-sharing. By explicitly taking into account long-term effects of short-term transfer decisions, our study allows to complement existing empirical research. The model results underline that new insurance programs have to be developed in close alignment with established risk-coping instruments. Only then can they be effective without weakening functioning aspects of informal risk management, which could lead to increased poverty.https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0248757&type=printable |
| spellingShingle | Meike Will Jürgen Groeneveld Karin Frank Birgit Müller Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model. PLoS ONE |
| title | Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model. |
| title_full | Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model. |
| title_fullStr | Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model. |
| title_full_unstemmed | Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model. |
| title_short | Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model. |
| title_sort | informal risk sharing between smallholders may be threatened by formal insurance lessons from a stylized agent based model |
| url | https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0248757&type=printable |
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