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

Author

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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.

Suggested Citation

  • Gunnar Breustedt & Raushan Bokusheva & Olaf Heidelbach, 2008. "Evaluating the Potential of Index Insurance Schemes to Reduce Crop Yield Risk in an Arid Region," Journal of Agricultural Economics, Wiley Blackwell, vol. 59(2), pages 312-328, June.
  • Handle: RePEc:bla:jageco:v:59:y:2008:i:2:p:312-328
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    References listed on IDEAS

    as
    1. Brosig, Stephan & Yahshilikov, Yorbol, 2005. "Interregional integration of wheat markets in Kazakhstan
      [Interregionale Integration von Weizenmärkten in Kasachstan]
      ," IAMO Discussion Papers 88, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    2. Karuaihe, Raphael N. & Wang, H. Holly & Young, Douglas L., 2006. "Weather-Based Crop Insurance Contracts for African Countries," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25378, International Association of Agricultural Economists.
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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, Springer;European Association of Environmental and Resource Economists, vol. 57(4), pages 527-551, April.
    2. repec:ags:gjagec:270173 is not listed on IDEAS
    3. Antoine Leblois & Philippe Quirion, 2011. "Weather-index drought insurance : an ex ante evaluation for millet growers in Niger," Working Papers hal-00866438, HAL.
    4. Sibiko, Kenneth W. & Veettil, Prakashan C. & Qaim, Matin, 2017. "Small Farmers' Preferences for Weather Index Insurance: Insights from Kenya," GlobalFood Discussion Papers 256213, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    5. repec:spr:nathaz:v:91:y:2018:i:1:d:10.1007_s11069-017-3109-7 is not listed on IDEAS
    6. Chantarat, Sommarat & Mude, Andrew G. & Barrett, Christopher B. & Turvey, Calum G., 2017. "Welfare Impacts of Index Insurance in the Presence of a Poverty Trap," World Development, Elsevier, vol. 94(C), pages 119-138.
    7. Sibiko, Kenneth W. & Veettil, Prakashan C. & Qaim, Matin, 2016. "Small Farmers’ Preferences for Weather Index Insurance: Insights from Kenya," 2016 Fifth International Conference, September 23-26, 2016, Addis Ababa, Ethiopia 246399, African Association of Agricultural Economists (AAAE).
    8. Antoine Leblois & Philippe Quirion & Benjamin Sultan, 2013. "Price vs. weather shock hedging for cash crops: ex ante evaluation for cotton producers in Cameroon," CIRED Working Papers hal-00796528, HAL.
    9. Antoine Leblois & Philippe Quirion & Benjamin Sultan, 2013. "Price vs. weather shock hedging for cash crops: ex ante evaluation for cotton producers in Cameroon," Working Papers hal-00796528, HAL.
    10. Conradt, Sarah & Bokusheva, Raushan & Finger, Robert & Kussaiynov, Talgat, 2014. "Yield Trend Estimation in the Presence of Farm Heterogeneity and Non-linear Technological Change," Quarterly Journal of International Agriculture, Humboldt-Universitaat zu Berlin, vol. 0(Number 2), pages 1-20, May.
    11. Takahashi, Kazushi & Ikegami, Munenobu & Sheahan, Megan & Barrett, Christopher B., 2014. "Quasi-experimental evidence on the drivers of index-based livestock insurance demand in Southern Ethiopia," IDE Discussion Papers 480, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    12. Jensen, Nathaniel D. & Barrett, Christopher B. & Mude, Andrew G., 2014. "Basis Risk and the Welfare Gains from Index Insurance: Evidence from Northern Kenya," MPRA Paper 59153, University Library of Munich, Germany.
    13. 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.
    14. 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.
    15. Ani Melkonyan & Malcolm Asadoorian, 2014. "Climate impact on agroeconomy in semiarid region of Armenia," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 16(2), pages 393-414, April.
    16. 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;The Geneva Association, vol. 37(2), pages 286-317, April.
    17. Huo, Ran & Octavio, Ramirez, 2017. "Basis risk and welfare effect of weather index insurance for smallholders in China," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252816, Southern Agricultural Economics Association.
    18. Castillo, Maria Jose & Boucher, Stephen & Carter, Michael, 2016. "Index Insurance: Using Public Data to Benefit Small-Scale Agriculture," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 0(Special I), pages 1-22, June.
    19. repec:ags:gjagec:232342 is not listed on IDEAS
    20. Antoine Leblois & Philippe Quirion, 2013. "Agricultural insurances based on meteorological indices: realizations, methods and research challenges," Post-Print hal-00656778, HAL.
    21. Hong Shi & Zhihui Jiang, 2016. "The efficiency of composite weather index insurance in hedging rice yield risk: evidence from China," Agricultural Economics, International Association of Agricultural Economists, vol. 47(3), pages 319-328, May.
    22. Pelka, Niels & Mußhoff, Oliver, 2013. "Das Risikoreduzierungspotenzial von Wetterderivaten im Ackerbau: Einfachindizes versus Mischindizes," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 62(4).

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