Informal Risk Sharing and Demand for Index Insurance: Experimental Evidence from Rural Uganda

Perez-Viana, Borja, D'Exelle, Ben ORCID: https://orcid.org/0000-0001-9332-5223 and Verschoor, Arjan (2026) Informal Risk Sharing and Demand for Index Insurance: Experimental Evidence from Rural Uganda. Journal of Risk and Insurance. (In Press)

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Abstract

Index insurance holds promise for smallholder farmers in developing countries, but its value is limited by basis risk: the imperfect correlation between the index and actual losses. If basis risk can be informally shared among farmers, the value of index insurance may increase, potentially raising demand. Conversely, the availability of formal insurance may reduce informal risk sharing; if farmers anticipate this, their demand for insurance may decline. The net effect is therefore ambiguous. We designed a lab experiment to study how informal risk sharing affects demand for index insurance and implemented it among farmers in Uganda. We find that demand for index insurance responds negatively to the presence of risk sharing, suggesting that informal arrangements crowd out formal insurance. We also find that absolute informal transfers are larger under index insurance than under indemnity insurance, but this reflects larger losses rather than a higher proportion of losses being shared. At the same time, the availability of risk sharing paradoxically reduces demand for index insurance, primarily by lowering high coverage choices. We discuss how strong local sharing norms and behavioral motives may help explain this finding.

Item Type:	Article
Faculty \ School:	Faculty of Social Sciences > School of Global Development (formerly School of International Development) Faculty of Science > Tyndall Centre for Climate Change Research University of East Anglia Research Groups/Centres > Faculty of Science > Research Centres > Tyndall Centre for Climate Change Research
UEA Research Groups:	Faculty of Social Sciences > Research Groups > Impact Evaluation Faculty of Social Sciences > Research Groups > Gender and Development Faculty of Social Sciences > Research Groups > Environment, Resources and Conflict Faculty of Social Sciences > Research Groups > Behavioural and Experimental Development Economics Faculty of Social Sciences > Research Groups > Behavioural Economics Faculty of Social Sciences > Research Centres > Centre for Behavioural and Experimental Social Sciences
Depositing User:	LivePure Connector
Date Deposited:	08 Jul 2026 16:08
Last Modified:	08 Jul 2026 16:08
URI:	https://ueaeprints.uea.ac.uk/id/eprint/103797
DOI:

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