Paper

Risk Preferences and Demand for Insurance Under Price Uncertainty: An Experimental Approach for Cocoa Farmers in Côte d'Ivoire

Analyzing the relationship between farmers' demand for insurance and their risk aversion

Microinsurance Innovation Facility’'s Research Paper No. 13 analyzes willingness-to-pay (WTP) for minimum price insurance and potential role of risk aversion among cocoa farmers in rural Côte d'’Ivoire. It focuses on the interaction between farmers’ risk preferences and the potential demand for cocoa price insurance in an attempt to help farmers in dealing with exposure to commodity price risks. The paper states that dealing with risks and risk aversion have become an important aspect of farm management especially in the developing world. A lack of price risk management tools is one of the reasons why poor farmers stay poor in developing countries. Study findings reveal a relatively high level of risk aversion and a relatively low WTP for minimum price insurance among Ivorian cocoa farmers. Findings include:

  • Farmers are interested in minimum price insurance;
  • Independent variables like household size, farming experience, and monetary value of livestock affect farmers' demand for insurance;
  • Risk aversion has a significant effect on farmers’ insurance take-up decisions.

The study suggests that the formulation and implementation of rural development policies should pay particular attention to farmers’ risk aversion.