Effects of microinsurance on informal safety nets and on strategies for natural resource use. A model-based analysis

• Applicant: Dr. Birgit Müller
• Subject Area: Agricultural Economics, Agricultural Policy, Agricultural Sociology
• Term: from 2016 to 2020
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 321077328

In 2015, the international community formulated the Sustainable Development Goals to tackle urgent global problems. These problems include shocks that cause food insecurity and threaten human livelihoods, magnified by climate and environmental change. In this context, microinsurance is being promoted and supported by numerous governments as an adequate policy instrument. Microinsurance refers to insurance products that are specifically targeted at low-income people in developing countries. Assessment studies of such policies show mixed results regarding their effectiveness, however, and warn against unintended adverse effects. Microinsurance schemes may, for example, crowd out informal safety nets (existing community-based risk-sharing arrangements) or create incentives for less sustainable land use choices. One typical reason is that, while designing a policy, a holistic view is missing and possible impacts on coupled social-ecological systems are not taken into account. With this project, we want to contribute to a much-needed enhanced understanding of the effects of microinsurance on social-ecological systems. Specifically, we will address the following research questions: 1) Under which conditions will microinsurance crowd out informal safety nets? Could this decrease communal welfare and exacerbate social inequalities? 2) Under which circumstances can microinsurance act as a sensible complement to informal safety nets? 3) Will land users change their land use strategies given access to microinsurance? Under which conditions will this lead to a degradation of natural resources? 4) Can microinsurance schemes enhance the resilience of land users to shocks in the presence of global change processes such as climate change? To address these questions, we will combine the approach of agent-based modelling with social network analysis to develop a stylized dynamic simulation model. The innovation of this approach is that it simultaneously takes into consideration feedbacks in the social-ecological system, interactions between actors, and changes in social structures. Our model-based analysis is guided by two case studies: (a) drought insurance in Kenya and Ethiopia and (b) health insurance in Cambodia. With these case studies, our analysis comprises shocks of different magnitude. Thanks to our systematic approach of gradually increasing complexity, we expect an original contribution to knowledge on two levels. First, we offer process-based explanations of empirically observable patterns from the case studies; and second, we advance a thorough understanding of the effects of microinsurance at the systems level, particularly regarding the relevance of social-ecological feedbacks.

• DFG Programme: Research Grants