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Index Insurance, Probabilistic Climate Forecasts, and Production

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Author Info
Miguel Carriquiry () (Center for Agricultural and Rural Development (CARD), Food and Agricultural Policy Research Institute (FAPRI))
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.

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Publisher Info
Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 08-wp465.

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Date of creation: Mar 2008
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Handle: RePEc:ias:cpaper:08-wp465

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Related research
Keywords: basis risk; climate forecast; index insurance; input decisions; insurance; risk management.;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Babcock, Bruce A., 2003. "Value of Weather Information in Market Equilibrium (The)," Staff General Research Papers 10592, Iowa State University, Department of Economics.
  2. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug.. [Downloadable!] (restricted)
  3. Chambers, Robert G & Quiggin, John, 2002. " Optimal Producer Behavior in the Presence of Area-Yield Crop Insurance," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 84(2), pages 320-34, May. [Downloadable!] (restricted)
  4. Cabrera, Victor E. & Letson, David & Podesta, Guillermo, 2007. "The value of climate information when farm programs matter," Agricultural Systems, Elsevier, vol. 93(1-3), pages 25-42, March. [Downloadable!] (restricted)
  5. Babcock, Bruce A. & Hennessy, David, 1994. "Input Demand Under Yield and Revenue Insurance," Staff General Research Papers 794, Iowa State University, Department of Economics. [Downloadable!]
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  6. 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. [Downloadable!] (restricted)
  7. Lybbert, Travis J. & Barrett, Christopher B. & McPeak, John G. & Luseno, Winnie K., 2007. "Bayesian Herders: Updating of Rainfall Beliefs in Response to External Forecasts," World Development, Elsevier, vol. 35(3), pages 480-497, March. [Downloadable!] (restricted)
  8. Skees, Jerry & Hazell, P. B. R. & Miranda, Mario, 1999. "New approaches to crop yield insurance in developing countries:," EPTD discussion papers 55, International Food Policy Research Institute (IFPRI). [Downloadable!]
  9. Hansen, J. W., 2002. "Applying seasonal climate prediction to agricultural production," Agricultural Systems, Elsevier, vol. 74(3), pages 305-307, December. [Downloadable!] (restricted)
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  1. Novak, James & Nadolnyak, Denis, 2008. "Climate Effects on Rainfall Index Insurance Purchase Decisions," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46834, Southern Agricultural Economics Association. [Downloadable!]
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