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Can Insurance Payouts Prevent a Poverty Trap? Evidence from Randomized Experiments in Northern Kenya NORITOMO, Yuma TAKAHASHI, Kazushi index insurance risk management pastoralist poverty trap Kenya Index-based insurance can have welfare-enhancing effects through two pathways: by mitigating weather-related shocks through payouts and by inducing policyholders to take greater yet more profitable risks. Most studies fail to distinguish between these two. Thus, we know little about which effects dominate and their long-term welfare implications. Using a random distribution of discount coupons and drought events that trigger payouts as exogenous variations, this study aims to identify both the ex ante risk-management and ex post payout effects of index insurance in a pastoral-dominant society of northern Kenya, where the presence of asset-based poverty traps, represented by bifurcated herd-size dynamics, has been established in the literature. We find the following: (1) Both risk-management and payout effects contribute to reducing the probability of distress sales of livestock; (2) payout effects also lead to a reduced slaughter of livestock; (3) while payout effects remain robust in a subsample of poorer households below the poverty trap threshold, risk-management effects do not. Overall, our results suggest that insurance payouts assist people in escaping from poverty traps more effectively than do behavioural changes accompanied by insurance purchases. JEL Classification Codes: O12, I32, G22, Q14 GRIPS Policy Research Center 2019-06-19 eng technical report AM https://doi.org/10.24545/00001684 https://grips.repo.nii.ac.jp/records/1696 10.24545/00001684 https://ideas.repec.org/p/ngi/dpaper/19-07.html https://ideas.repec.org/p/ngi/dpaper/19-07.html GRIPS Discussion Papers DP19-07 https://grips.repo.nii.ac.jp/record/1696/files/DP19-07.pdf application/pdf 998.0 kB