Ex ante and ex post effects of hybrid index insurance in Bangladesh ∗ Ruth Vargas Hill1, Neha Kumar2, Nicholas Magnan3, Simrin Makhija2, Francesca de Nicola1, David J. Spielman2, and Patrick S. Ward4 1The World Bank, Washington, DC, USA 2International Food Policy Research Institute, Washington, DC, USA 3University of Georgia, Athens, GA, USA 4Duke Kunshan University, Kunshan, Jiangsu, China July 30, 2018 Abstract We assess both the demand for and effectiveness of index insurance product to help smallholder farmers in Bangladesh manage production risk during the monsoon season. Villages were randomized into insurance treatment or comparison groups, and discounts and rebates were randomly allocated across treatment villages to encourage take-up and to allow for the estimation of the price-elasticity of insurance demand. Among those offered insurance, we find demand to be fairly price elastic, with discounts more successful in stimulating demand than rebates. Purchasing insurance yields both ex ante risk management effects as well as ex post income effects on production practices. Risk management effects lead to an expansion of cultivated area with concomitant increases in input expenditures during the monsoon season. Income effects lead to more intensive rice production during the subsequent dry season, with more intensive use of fertilizers and labor, resulting in higher yields and higher total rice production. JEL classification: O12, O13, Q12, G22 Keywords: Index insurance, risk and uncertainty, agriculture, Bangladesh ∗Corresponding author:
[email protected]. Authors are listed in alphabetical order. We thank Akhter Ahmed, Michael Carter, Daniel J. Clarke, Md. Zahidul Hassan and colleagues at Data Analysis and Technical Assistance (DATA), Khandaker Alamgir Hossain and colleagues at Gram Unnayan Karma (GUK), Parendi Mehta, Sumedha Minocha, Sameer Safwan, the Bangladesh Bureau of Statistics, and the Palli Karma-Sahayak Foundation (PKSF).