Climate Adaptation and Policy Interactions

Adaptation is essential to helping farmers cope with climate change. To support this, governments and international institutions invest billions each year in subsidizing agricultural insurance, with the aim of encouraging farmers to experiment with new technologies by reducing their exposure to risk. While there is strong evidence that these subsidies increase farmer investment, it is equally important to understand how insurance affects other adaptive behaviors. Subsidized insurance may crowd in adaptation by reducing the risks of trying new technologies—but it may also crowd out adaptation by making farmers feel less vulnerable to climate shocks, thereby reducing their incentive to take additional protective measures. This project will test which of these effects dominates with a randomized control trial in West Bengal, India. The researchers will randomize 300 villages into a control group and index insurance arms, where farmers receive payouts if floods occur. The researchers will estimate the impact of insurance on farmer willingness-to-pay for both flood-tolerant and high-yield-variety seeds, providing a direct test of the impacts of insurance on demand for adaptation. The researchers will also induce random variation in seed take-up, in order to estimate the effects of specialty seeds, insurance, and their interaction on agricultural inputs and ex post welfare outcomes.

“With governments around the world increasingly turning to subsidized crop insurance to support farmers, it is critical to understand how these policies impact what farmers do to adapt to climate change. This project will help provide that insight.”

Fiona Burlig, Assistant Professor, Harris School of Public Policy at the University of Chicago