The Effect of Microinsurance on Economic Activities: Evidence from a Randomized Field Experiment∗

Lack of access to formal insurance market may prevent farmers from pursuing risky production activities with potentially large returns. How does access to formal microinsurance affect production and economic development? We report results from a large randomized field experiment conducted in southwestern China in the context of a subsidized insurance for sows. We induce exogenous variation in insurance coverage at the village level by randomly assigning performance incentives to the village Animal Husbandry Worker who is responsible for signing farmers up for the sow insurance. We find that promoting greater adoption of insurance significantly increases farmers’ tendency to raise sows, and the short-run effect of sow insurance on sow production seems to persist in the longer run. Moreover, we find that the increase in sow production in response to the sow insurance does not seem to be the result of the substitution of other livestock.