Overconfidence And Crop Insurance Demand

Sammanfattning: This thesis investigates overconfidence and its effect on crop insurance demand in one of the most drought-prone regions in the world: Tigrai in Northern Ethiopia. As the formal safety-nets in this developing country are almost non-existent, the population is highly vulnerable to natural disasters. Microinsurance has been advocated by many as a solution to this problem, but demand has so far been surprisingly low. Through a survey on 201 farmers, we measure three different aspects of overconfidence and relate them to farmers' willingness to pay for crop insurance. To our knowledge, we are the first to study the relationship between overconfidence and crop insurance demand in a developing country. We find strong evidence of overconfidence, in line with previous research. However, our finding of weak indications of a positive relationship to crop insurance demand contradicts studies from USA. The differing results primarily stem from contextual differences, suggesting that the relationship cannot be generalized between countries.