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Title: Productive Spillovers of the Take-Up of Index-Based Livestock Insurance

item TOTH, RUSSELL - University Of Sydney
item BARRETT, CHRISTOPHER - Cornell University
item BERSTEIN, RICH - Cornell University
item Clark, Pat
item GOMES, CARLA - Cornell University
item SHIBIA, MOHAMED - International Livestock Research Institute (ILRI) - Kenya
item MUDE, ANDREW - International Livestock Research Institute (ILRI) - Kenya

Submitted to: Meeting Abstract
Publication Type: Proceedings
Publication Acceptance Date: 3/18/2014
Publication Date: 7/27/2014
Citation: Toth, R.D., Barrett, C., Berstein, R., Clark, P., Gomes, C., Shibia, M., Mude, A. 2014. Productive Spillovers of the Take-Up of Index-Based Livestock Insurance. Proceedings of the Agricultural and Applied Economics Association.

Interpretive Summary: Effects of Index-Based Livestock Insurance (IBLI) on herd accumulation and movement patterns by East African pastoralists were unknown. Household surveys and GPS tracking of pastoralist herds were conducted to determine herd accumulation and movement responses in insured and uninsured households. Insured households tended to increase their cattle herd sizes while reducing the mobility of their herds. These responses raise concerns of intensified resource use and accelerated environmental degradation.

Technical Abstract: Does the provision of livestock insurance raise the unintended consequence of stimulating excessive herd accumulation and less environmentally-sustainable herd movement patterns? The impact of insurance is theoretically ambiguous: if precautionary savings motives for holding livestock assets dominate, then we would expect to see households that receive index insurance reduce herd sizes and move less intensively. However if risk-adjusted investment motives dominate then we would expect them to build herds and move more. “Behavioural” or norm-based responses are also possible. To test between these theoretical possibilities we use the randomized provision of livestock insurance paired with novel, high frequency data collection. The results suggest that in the presence of insurance pastoralists accumulate larger herds, and move more intensively. This has implications for the potential ecological impacts scaling up of index insurance programs on the pastoralist rangelands, and for microinsurance and pastoralism more broadly.