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Statistical analysis of rainfall insurance payouts in southern India

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Author Info
Gine, Xavier
Townsend, Robert
Vickery, James

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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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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4426.

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Date of creation: 01 Dec 2007
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Handle: RePEc:wbk:wbrwps:4426

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Keywords: Debt Markets; Deposit Insurance; Labor Policies; Emerging Markets;

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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. 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. [Downloadable!] (restricted)
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  2. Zanjani, George, 2002. "Pricing and capital allocation in catastrophe insurance," Journal of Financial Economics, Elsevier, vol. 65(2), pages 283-305, August. [Downloadable!] (restricted)
  3. Barry J. Barnett & Olivier Mahul, 2007. "Weather Index Insurance for Agriculture and Rural Areas in Lower-Income Countries," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 89(5), pages 1241-1247, December. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
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  5. Xavier Giné & Robert Townsend & James Vickery, 2007. "Patterns of rainfall insurance participation in rural India," Staff Reports 302, Federal Reserve Bank of New York. [Downloadable!]
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  6. Eric Zitzewitz, 2006. "How Widespread Was Late Trading in Mutual Funds?," American Economic Review, American Economic Association, vol. 96(2), pages 284-289, May. [Downloadable!]
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  7. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May. [Downloadable!] (restricted)
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(explanations, 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. 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. [Downloadable!]
  2. Shawn Cole & Xavier Giné & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2009. "Barriers to household risk management: evidence from India," Staff Reports 373, Federal Reserve Bank of New York. [Downloadable!]
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