Index-Based Insurance in Developing Countries: Rational Neglect?
Microinsurance adoption in developing countries is low, despite its potential to foster economic growth. Recent research is not able to explain the low take-up rates within the neoclassical framework. In this paper, Author suggest rational explanations of farmers’ low take-up rates of index-based weather insurance by setting up a stochastic model within an expected utility framework. This approach stands in contrast to previous research that is mainly concerned about convincing farmers of the insurance product without taking into account the (objective) failure of the contract for many farmers.