Abstract

We evaluate the effects of a randomly administered educational game on index insurance conducted with 400 households in Ethiopia in the 2010 growing season. Our game teaches farmers about the benefits and limitations of index insurance. All village members were then offered the choice to purchase real index insurance, designed with the input of local communities. We find that financial education, in the form of an experimental game, has a positive and significant effect on take-up for a real index insurance product. These effects are driven by cash purchasers, as labor purchasers' demand exceeded the quota for total allowable labor purchases. Cash purchasers in the game, while more likely to purchase insurance, purchase less coverage than labor purchasers, and even less if exposed to the educational game. As a result, the game had a significant and positive impact on insurance take-up, but an overall negative effect on the amount of insurance purchased, driven by the relatively larger increase in cash purchasers. Financial education is effective at increasing overall take-up, but purchasers who are cash constrained and educated on index insurance purchase less than those similar cash purchasers are not educated on these matters.

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