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Evaluating the Potential of Index Insurance Schemes to Reduce Crop Yield Risk in an Arid Region

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  • Gunnar Breustedt
  • Raushan Bokusheva
  • Olaf Heidelbach

Abstract

We evaluate yield risk reduction through weather index, area yield index and farm yield insurance contracts for wheat farms in Kazakhstan by employing data from 1980 to 2002. We use the usual mean variance (MV) approach and also a second-degree stochastic dominance (SSD) criterion. While MV is not necessarily consistent with the expected utility (EU) theory, SSD results only in a minimum but EU-consistent benefit from insuring. Differences in the estimation results for both approaches underline the advantage of applying both criteria to analyse the risk-reducing potential of crop insurance. Bootstrapping results show that none of the analysed insurance schemes provides statistically significant risk reduction for every single farm. In addition, weather-based index insurance is found to provide less risk reduction than area yield insurance based on the rayon (county) yield. Moreover, rayon yield index insurance can reduce yield risk more effectively for Kazakhstan's wheat producers than farm yield insurance with a low strike yield. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 The Agricultural Economics Society.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Agricultural Economics.

Volume (Year): 59 (2008)
Issue (Month): 2 (06)
Pages: 312-328

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Handle: RePEc:bla:jageco:v:59:y:2008:i:2:p:312-328

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Cited by:
  1. Antoine Leblois & Philippe Quirion & Agali Alhassane & Seydou Traoré, 2014. "Weather Index Drought Insurance: An Ex Ante Evaluation for Millet Growers in Niger," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 57(4), pages 527-551, April.
  2. Antoine Leblois & Philippe Quirion & Benjamin Sultan, 2014. "Price vs. weather shock hedging for cash crops: ex ante evaluation for cotton producers in Cameroon," Post-Print halshs-00967313, HAL.
  3. repec:hal:wpaper:hal-00796528 is not listed on IDEAS
  4. Antoine Leblois & Philippe Quirion, 2013. "Agricultural insurances based on meteorological indices: realizations, methods and research challenges," Post-Print hal-00656778, HAL.
  5. Kellner, Ulla & Musshoff, Oliver, 2011. "Precipitation or water capacity indices? An analysis of the benefits of alternative underlyings for index insurance," Agricultural Systems, Elsevier, vol. 104(8), pages 645-653, October.
  6. Bokusheva, Raushan & Breustedt, Gunnar & Heidelbach, Olaf, 2007. "Ex-ante evaluation of weather-based index insurance and area-yield insurance for reducing crop yield risk," 101st Seminar, July 5-6, 2007, Berlin Germany 9250, European Association of Agricultural Economists.
  7. Ani Melkonyan & Malcolm Asadoorian, 2014. "Climate impact on agroeconomy in semiarid region of Armenia," Environment, Development and Sustainability, Springer, vol. 16(2), pages 393-414, April.
  8. repec:hal:wpaper:hal-00866438 is not listed on IDEAS
  9. Ines Kapphan & Pierluigi Calanca & Annelie Holzkaemper, 2012. "Climate Change, Weather Insurance Design and Hedging Effectiveness," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 37(2), pages 286-317, April.

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