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Index Insurance, Probabilistic Climate Forecasts, and Production

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  • Miguel Carriquiry
  • Daniel E. Osgood

Abstract

Index insurance and probabilistic seasonal forecasts are becoming available in developing countries to help farmers manage climate risks in production. Although these tools are intimately related, work has not been done to formalize the connections between them. We investigate the relationship between the risk management tools through a model of input choice under uncertainty, forecasts, and insurance. While it is possible for forecasts to undermine insurance, we find that when contracts are appropriately designed, there are important synergies between forecasts, insurance, and effective input use. Used together, these tools overcome barriers preventing the use of imperfect information in production decision making.

Suggested Citation

  • Miguel Carriquiry & Daniel E. Osgood, 2008. "Index Insurance, Probabilistic Climate Forecasts, and Production," Center for Agricultural and Rural Development (CARD) Publications 08-wp465, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:08-wp465
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    References listed on IDEAS

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    1. World Bank, 2005. "Managing Agricultural Production Risk : Innovations in Developing Countries," World Bank Publications - Reports 14434, The World Bank Group.
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    Cited by:

    1. Novak, James L. & Nadolnyak, Denis A., 2008. "Climate Effects on Rainfall Index Insurance Purchase Decisions," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46834, Southern Agricultural Economics Association.
    2. Juárez-Torres, Miriam & Sánchez-Aragón, Leonardo & Vedenov, Dmitry, 2017. "Weather Derivatives and Water Management in Developing Countries: An Application for an Irrigation District in Central Mexico," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(2), May.
    3. Glenn W. Harrison & Jia Min Ng, 2019. "Behavioral insurance and economic theory: A literature review," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(2), pages 133-182, July.
    4. Jensen, Nathaniel D. & Mude, Andrew G. & Barrett, Christopher B., 2018. "How basis risk and spatiotemporal adverse selection influence demand for index insurance: Evidence from northern Kenya," Food Policy, Elsevier, vol. 74(C), pages 172-198.
    5. Shen, Zhiwei, 2016. "Adaptive local parametric estimation of crop yields: implication for crop insurance ratemaking," 156th Seminar, October 4, 2016, Wageningen, The Netherlands 249984, European Association of Agricultural Economists.
    6. Dissemin, uploaded via & Berg, Alexis & Quirion, Philippe & Sultan, Benjamin, 2018. "Weather-index drought insurance in Burkina-Faso: assessment of its potential interest to farmers," OSF Preprints dsmqz, Center for Open Science.
    7. Alexis Berg & Philippe Quirion & Benjamin Sultan, 2009. "Weather-index drought insurance in Burkina-Faso: assessment of its potential interest to farmers," Post-Print hal-00520893, HAL.
    8. Antoine Leblois & Philippe Quirion, 2013. "Agricultural insurances based on meteorological indices: realizations, methods and research challenges," Post-Print hal-00656778, HAL.
    9. Martin Eling, 2013. "Recent Research Developments Affecting Nonlife Insurance—The CAS Risk Premium Project 2011 Update," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 16(1), pages 35-46, March.
    10. Nadolnyak, Denis A. & Vedenov, Dmitry V., 2010. "Designing Rainfall Insurance Contracts for Pasture, Rangeland, and Forage," 2010 Annual Meeting, February 6-9, 2010, Orlando, Florida 56511, Southern Agricultural Economics Association.
    11. Ya-Wen Chiueh & Cheng-Chang Huang & Chih-Hung Tan, 2013. "Modeling The Rice-Climate Indices In Taiwan," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 4(03), pages 1-19.
    12. Benjamin L. Collier, 2020. "Strengthening Local Credit Markets Through Lender‐Level Index Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(2), pages 319-349, June.
    13. Novak, James L. & Nadolnyak, Denis A., 2010. "Climate Effects on Rainfall Index Insurance Purchase Decisions," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2010, pages 1-13.
    14. Nadolnyak, Denis A. & Vedenov, Dmitry V., 2010. "The Value of Long-Term Climate Forecast Information in Weather Index Insurance," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61755, Agricultural and Applied Economics Association.

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    Keywords

    basis risk; climate forecast; index insurance; input decisions; insurance; risk management.;
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