tu tranquilidad..... en el campo!

to answer the questions of what exactly i'm doing in peru, i'm working on a research project in collaboration with a load of ag economists from uc davis, university of san francisco, u of wisconsin and peru. the general idea is that we are introducing a new form of crop insurance available to cotton farmers in the pisco valley through the insurance company, la positiva. the insurance is available through the local microfinance bank from which most farmers get their loans.

the details on the insurance are as follows. indemnities are payed when average valley yields are below a certain strikepoint, which was established with historical yield data. so, if there's horrendous weather one year, or some kind of shock that affects the whole valley, farmers who bought the insurance will get a payout. the idea is that in a year when everyone's yield is suffering, there's no support for farmers who can't pay back their loan (almost all cotton farmers here operate on loaned money). the insurance shifts covariate risk from farmers to the insurance company.

there are lots of levels of research going on through this insurance project. the million dollar question is to see if farmers will be more willing to take out credit, since they're insured against more risk with the crop insurance. at the same time, credit agencies may be more willing to give out loans since they're more confident that they'll get paid (either from the farmer or la positiva).

another question is whether or not farmers will understand this new form of insurance, so the research team i am on is going out to teach farmers about it through experimental economic games. the games simulate production decisions with real payouts (in proportion to what they would normally make, i.e. $1400 is a typical yearly payout, translated to $2.2 of real money in our game). we simulate weather shocks and individual luck by drawing from a bag. the idea is that the highest expected payout comes with the choice of credit with insurance, which the farmers learn by playing the game over and over.

the question i'm investigating is if their "individual luck" factor is more important than their "weather shock" factor in determining variability of cotton output. if a farmer faces more risk from, say, getting robbed than he does from bad weather, then a covariate insurance policy wouldn't do much for the farmer. or, maybe someone with a certain set of characteristics is more likely to invest in the covariate insurance... that would help identify market potential for the insurance company, and shed light as to how a farmer deals with risk.

how awesome is that????? maybe not that awesome. but i find it all really interesting, and i'm probably not explaining it the best way possible. actually though, i've had a lot of practice explaining to tourists what the hell it is i'm doing in pisco (a town destroyed by last year's earthquake, where no tourists go). i start off with "working with cotton farmers" to "introducing a new insurance program" and finally, if they seem interested, go into the whole experimental games thing. i had one guy basically tell me that it was unethical to play chance-based games with these indigenous peruvians, since it's probably against their tribal religions.

the farmers we meet range from really old and senile, to old and hilarious. there are a few young guys who are generally smart. i think overall they enjoy the games because a) they get to win money, and b) it's almost like gambling, which is fun. plus they learn about this new insurance which, all things considered, is a good thing.

anyway, we're done with all the games and we're moving on to another survey that will be distributed in the fall. i'm going to start looking at a risk-survey which will hopefully write my thesis for me. yahoo.

and no pictures for now... the internet connection here sucks.

edit: the title of this post comes from a short video we played during the presentations in pisco... it's a ridiculous promo made by la positiva, and we as researchers do our best to distance ourselves from peddling insurance. anyway, the people in the video are really excited about crop insurance, and it ends with a forceful, "Agropositiva! Tú tranquilidad..... en el campo," with the camera panning across a flourishing campo.