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The protective role of index insurance in the experience of violent conflict: Evidence from Ethiopia

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  • Sakketa, Tekalign Gutu
  • Maggio, Dan
  • McPeak, John

Abstract

Droughts are among the leading causes of livestock mortality and conflict among pastoralist populations in East Africa. To foster climate resiliency in these populations, Index Based Livestock Insurance (IBLI) products have become popular. These products, which allow herders to hedge climate risk, often utilize remote-sensed data to trigger indemnity payouts, thus ameliorating moral hazard issues associated with standard insurance products. We study how one such program in southern Ethiopia interacts with conflict risk created by insufficient precipitation. First, we show that a 1 mm negative shock to rainfall is associated with an increase of 0.32–0.43 percentage points of conflict risk, suggesting a one standard deviation decrease in rainfall has the potential to as much as double conflict risk faced by households. By leveraging a randomized encouragement experiment, we then show that participation in IBLI decreases the conflict risk that households face by as much as 4.9 percentage points and that the protective effect of IBLI grows when rainfall is poor. Our secondary analysis suggests that reduced migratory pressure and income diversification drive our results. Our results imply that index insurance programs can act as a protective factor in areas with complex risk profiles, where households are exposed to both climatic and conflict risks, which themselves may interact.

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  • Sakketa, Tekalign Gutu & Maggio, Dan & McPeak, John, 2025. "The protective role of index insurance in the experience of violent conflict: Evidence from Ethiopia," Journal of Development Economics, Elsevier, vol. 174(C).
    • Handle: RePEc:eee:deveco:v:174:y:2025:i:c:s0304387824001949
    DOI: 10.1016/j.jdeveco.2024.103445
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    2. Nathaniel Jensen & Jose Lopez-Rivas & Karlijn Morsink & Emma Rikken, 2025. "Weathering Conflict: The Effect of Resource Shocks on Livestock Raids," CSAE Working Paper Series 2025-02, Centre for the Study of African Economies, University of Oxford.

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    More about this item

    Keywords

    Pastoralism; Conflict; Weather; Index insurance; Droughts;
    All these keywords.

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • G52 - Financial Economics - - Household Finance - - - Insurance
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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