Abstract
This study aims to analyze the influence of weather index insurance on farmers’ credit default rates of loan group in trust games. A field economic experiment was conducted with 324 farmers in Heilongjiang Province, China. The results indicate that the weather index insurance reduces the default rates of farmers and improves the efficiency of group loan after mitigating the natural risk. Trust between farmers is an important factor affecting their default rates. Trust acts as a mediating variable, reinforcing the effect of weather index insurance on credit default rates. In order to reduce loan defaults by farmers and credit risks for financial institutions, the government should promote the credit linked with weather index insurance. Furthermore, financial institutions should pay attention to informal risk-sharing mechanisms to decrease default risks.
Published Version
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