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Statistical Analysis of Rainfall Insurance Payouts in Southern India

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  • Xavier Giné
  • Robert Townsend
  • James Vickery

Abstract

Using 40 years of historical rainfall data, this paper estimates a distribution for payouts on rainfall insurance policies offered to farmers in the State of Andhra Pradesh, India, in 2006. The authors find that the contracts primarily protect households against extreme tail events; half the expected value of indemnities paid by the insurance are generated by only 2 percent of rainfall realizations. Contract payouts are significantly correlatedcross-sectionally, and also inversely associated with real GDP growth. The paper discusses the implications of these findings for the potential benefits of insurance to households, the risks facing a financial institution underwriting rainfall insurance contracts, and pricing.

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File URL: http://hdl.handle.net/10.1111/j.1467-8276.2007.01092.x
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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 89 (2007)
Issue (Month): 5 ()
Pages: 1248-1254

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Handle: RePEc:oup:ajagec:v:89:y:2007:i:5:p:1248-1254

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References

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  1. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  2. Barry J. Barnett & Olivier Mahul, 2007. "Weather Index Insurance for Agriculture and Rural Areas in Lower-Income Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1241-1247.
  3. Xavier Giné & Robert Townsend & James Vickery, 2008. "Patterns of Rainfall Insurance Participation in Rural India," World Bank Economic Review, World Bank Group, vol. 22(3), pages 539-566, October.
  4. Zanjani, George, 2002. "Pricing and capital allocation in catastrophe insurance," Journal of Financial Economics, Elsevier, vol. 65(2), pages 283-305, August.
  5. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. " Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-58, December.
  6. Zitzewitz, Eric, 2003. "How Widespread Is Late Trading in Mutual Funds?," Research Papers 1817, Stanford University, Graduate School of Business.
  7. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, vol. 82(1), pages 15-33, March.
  8. Froot, Kenneth A. & Stein, Jeremy C., 1998. "Risk management, capital budgeting, and capital structure policy for financial institutions: an integrated approach," Journal of Financial Economics, Elsevier, vol. 47(1), pages 55-82, January.
  9. World Bank, 2005. "Managing Agricultural Production Risk : Innovations in Developing Countries," World Bank Other Operational Studies 8797, The World Bank.
  10. Hanan G. Jacoby & Emmanuel Skoufias, 1998. "Testing Theories of Consumption Behavior Using Information on Aggregate Shocks: Income Seasonality and Rainfall in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 1-14.
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Citations

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Cited by:
  1. Sommarat CHANTARAT & Kirk PANNANGPETCH & Nattapong PUTTANAPONG & Thanasin TANOMPONGHANDH, 2013. "Index-Based Risk Financing and Development of Natural Disaster Insurance Programs in Developing Asian Countries," Working Papers DP-2013-09, Economic Research Institute for ASEAN and East Asia (ERIA).
  2. Petia Topalova & Shawn Cole & Xavier Gene & Jeremy Tobacman & Robert Townsend & James Vickery, 2011. "Barriers to Household Risk Management: Evidence from India," Working Papers id:4293, eSocialSciences.
  3. Hill, Ruth Vargas & Robles, Miguel, 2011. "Flexible insurance for heterogeneous farmers: Results from a small-scale pilot in Ethiopia," IFPRI discussion papers 1092, International Food Policy Research Institute (IFPRI).
  4. Jacopo Bonan & Oliver Dagnelie & Philippe LeMay-Boucher & Michel Tenikue, 2012. "Is it all about Money? A Randomized Evaluation of the Impact of Insurance Literacy and Marketing Treatments on the Demand for Health Microinsurance in Senegal," Working Papers 216, University of Milano-Bicocca, Department of Economics, revised Jan 2012.
  5. Barnett, Barry J. & Barrett, Christopher B. & Skees, Jerry R., 2008. "Poverty Traps and Index-Based Risk Transfer Products," World Development, Elsevier, vol. 36(10), pages 1766-1785, October.
  6. Geoffroy Enjolras & Robert Kast, 2012. "Combining participating insurance and financial policies: A new risk management instrument against natural disasters in agriculture," Agricultural Finance Review, Emerald Group Publishing, vol. 72(1), pages 156-178, March.
  7. Akter, Sonia & Brouwer, Roy & Chowdhury, Saria & Aziz, Salina, 2008. "Determinants of Participation in a Catastrophe Insurance Programme: Empirical Evidence from a Developing Country," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 5984, Australian Agricultural and Resource Economics Society.
  8. Jean Philippe Platteau & Darwin Ugarte Ontiveros, 2013. "Understanding and Information Failures in Insurance: Evidence from India," Development Research Working Paper Series 07/2013, Institute for Advanced Development Studies.
  9. Ahmed Mushfiq Mobarak & Mark Rosenzweig, 2012. "Selling Formal Insurance to the Informally Insured," Working Papers 1007, Economic Growth Center, Yale University.
  10. Antoine Leblois & Philippe Quirion, 2013. "Agricultural insurances based on meteorological indices: realizations, methods and research challenges," Post-Print hal-00656778, HAL.
  11. Fuchs, Alan & Wolff, Hendrik, 2011. "Concept and Unintended Consequences of Weather Index Insurance: The Case of Mexico," IZA Discussion Papers 6234, Institute for the Study of Labor (IZA).
  12. Karlan, Dean & Morduch, Jonathan, 2010. "Access to Finance," Handbook of Development Economics, Elsevier.
  13. Xavier Gine & James Vickery & Shawn Cole, 2013. "How Does Risk Management Influence Production Decisions? Evidence From a Field Experiment," 2013 Meeting Papers 676, Society for Economic Dynamics.
  14. Daniel J. Clarke, 2011. "A Theory of Rational Demand for Index Insurance," Economics Series Working Papers 572, University of Oxford, Department of Economics.

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