IDEAS home Printed from https://ideas.repec.org/a/eee/deveco/v180y2026ics0304387825002093.html

Get in the zone: The risk-adjusted welfare effects of data-driven vs. administrative borders for index insurance zones

Author

Listed:
  • Kirchner, Ella
  • Benami, Elinor
  • Hobbs, Andrew
  • Carter, Michael R.
  • Jin, Zhenong

Abstract

Agricultural index insurance aims to protect producers from widespread shocks within defined areas, often based on administrative boundaries. However, these boundaries may poorly reflect yield variation, imposing costs on both policyholders and the public. Advances in geospatial data accessibility and clustering techniques offer potential to define more homogeneous insurance zones. This study evaluates the impact of redrawing zone boundaries based on observed agri-environmental conditions in western Kenya. Using over 13,000 crop cut observations with satellite-based estimates on growing conditions, we assess how data-driven zones affect producer welfare in a simulated area-yield index insurance program. While some data-driven zones modestly improve risk reduction with a fixed number of zones, greater flexibility in zone number and field sampling intensity offers more potential to balance performance and cost. We present a conceptual model and empirical simulations to characterize how zone design and data collection intensity jointly shape insurance outcomes in resource-constrained settings.

Suggested Citation

  • Kirchner, Ella & Benami, Elinor & Hobbs, Andrew & Carter, Michael R. & Jin, Zhenong, 2026. "Get in the zone: The risk-adjusted welfare effects of data-driven vs. administrative borders for index insurance zones," Journal of Development Economics, Elsevier, vol. 180(C).
    • Handle: RePEc:eee:deveco:v:180:y:2026:i:c:s0304387825002093
    DOI: 10.1016/j.jdeveco.2025.103658
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304387825002093
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jdeveco.2025.103658?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Dean Karlan & Robert Osei & Isaac Osei-Akoto & Christopher Udry, 2014. "Agricultural Decisions after Relaxing Credit and Risk Constraints," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 597-652.
    2. Tomislav Hengl & Gerard B M Heuvelink & Bas Kempen & Johan G B Leenaars & Markus G Walsh & Keith D Shepherd & Andrew Sila & Robert A MacMillan & Jorge Mendes de Jesus & Lulseged Tamene & Jérôme E Tond, 2015. "Mapping Soil Properties of Africa at 250 m Resolution: Random Forests Significantly Improve Current Predictions," PLOS ONE, Public Library of Science, vol. 10(6), pages 1-26, June.
    3. Wienand Kölle & Andrea Martínez Salgueiro & Matthias Buchholz & Oliver Musshoff, 2021. "Can satellite‐based weather index insurance improve the hedging of yield risk of perennial non‐irrigated olive trees in Spain?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(1), pages 66-93, January.
    4. Elinor Benami & Michael R. Carter, 2021. "Can digital technologies reshape rural microfinance? Implications for savings, credit, & insurance," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(4), pages 1196-1220, December.
    5. Nathaniel D. Jensen & Christopher B. Barrett & Andrew G. Mude, 2016. "Index Insurance Quality and Basis Risk: Evidence from Northern Kenya," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(5), pages 1450-1469.
    6. Cole, Shawn & Harigaya, Tomoko & Killeen, Grady & Krishna, Aparna, 2025. "Using satellites and phones to evaluate and promote agricultural technology adoption: Evidence from smallholder farms in India," Journal of Development Economics, Elsevier, vol. 176(C).
    7. Shawn Cole & Xavier Giné & James Vickery, 2017. "How Does Risk Management Influence Production Decisions? Evidence from a Field Experiment," The Review of Financial Studies, Society for Financial Studies, vol. 30(6), pages 1935-1970.
    8. Marie Chavent & Vanessa Kuentz-Simonet & Amaury Labenne & Jérôme Saracco, 2018. "ClustGeo: an R package for hierarchical clustering with spatial constraints," Computational Statistics, Springer, vol. 33(4), pages 1799-1822, December.
    9. Auffhammer, Maximilian & Schlenker, Wolfram, 2014. "Empirical studies on agricultural impacts and adaptation," Energy Economics, Elsevier, vol. 46(C), pages 555-561.
    10. Maximilian Auffhammer & Solomon M. Hsiang & Wolfram Schlenker & Adam Sobel, 2013. "Using Weather Data and Climate Model Output in Economic Analyses of Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 7(2), pages 181-198, July.
    11. Ghada Elabed & Marc F. Bellemare & Michael R. Carter & Catherine Guirkinger, 2013. "Managing basis risk with multiscale index insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 44(4-5), pages 419-431, July.
    12. Matthieu Stigler & David Lobell, 2024. "Optimal index insurance and basis risk decomposition: an application to Kenya," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(1), pages 306-329, January.
    13. Stefan Wimmer & Christian Stetter & Jonas Schmitt & Robert Finger, 2024. "Farm‐level responses to weather trends: A structural model," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(3), pages 1241-1273, May.
    14. Benson K Kenduiywo & Michael R Carter & Aniruddha Ghosh & Robert J Hijmans, 2021. "Evaluating the quality of remote sensing products for agricultural index insurance," PLOS ONE, Public Library of Science, vol. 16(10), pages 1-24, October.
    15. Enrique Estefania-Salazar & Michael Carter & Eva Iglesias & Álvaro Escribano, 2024. "Breaking Boundaries: Lower Tail Dependence Can Triple the Economic Value of Index Insurance for Rural Households," NBER Working Papers 32618, National Bureau of Economic Research, Inc.
    16. Michael Carter & Alain de Janvry & Elisabeth Sadoulet & Alexandros Sarris, 2017. "Index Insurance for Developing Country Agriculture: A Reassessment," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 421-438, October.
    17. Noah Miller & Jesse Tack & Jason Bergtold, 2021. "The Impacts of Warming Temperatures on US Sorghum Yields and the Potential for Adaptation," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(5), pages 1742-1758, October.
    18. Michael Carter & Alain de Janvry & Elisabeth Sadoulet & Alexandros Sarris, 2017. "Index Insurance for Developing Country Agriculture: A Reassessment," Annual Review of Resource Economics, Annual Reviews, vol. 9(1), pages 421-438, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Castaing, Pauline & Gazeaud, Jules, 2025. "Do index insurance programs live up to their promises? Aggregating evidence from multiple experiments," Journal of Development Economics, Elsevier, vol. 175(C).
    2. Quentin Stoeffler & Michael Carter & Catherine Guirkinger & Wouter Gelade, 2022. "The Spillover Impact of Index Insurance on Agricultural Investment by Cotton Farmers in Burkina Faso," The World Bank Economic Review, World Bank, vol. 36(1), pages 114-140.
    3. Ölkers, Tim & Musshoff, Oliver, 2026. "Bundling Weather Indexed-Insurance, SMS Extension Service, and Weather Information: Evidence from a Randomized Trial in Mali," 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri 404328, Agricultural and Applied Economics Association.
    4. Shin, Soye & Magnan, Nicholas & Mullally, Conner & Janzen, Sarah, 2022. "Demand for Weather Index Insurance among Smallholder Farmers under Prospect Theory," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 82-104.
    5. Michael R. Carter, 2022. "Can digitally‐enabled financial instruments secure an inclusive agricultural transformation?," Agricultural Economics, International Association of Agricultural Economists, vol. 53(6), pages 953-967, November.
    6. Erwin Bulte & Rein Haagsma, 2021. "The Welfare Effects of Index-Based Livestock Insurance: Livestock Herding on Communal Lands," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(4), pages 587-613, April.
    7. Sarah A. Janzen & Michael R. Carter & Munenobu Ikegami, 2021. "Can insurance alter poverty dynamics and reduce the cost of social protection in developing countries?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(2), pages 293-324, June.
    8. Matthieu Stigler & David Lobell, 2020. "On the benefits of index insurance in US agriculture: a large-scale analysis using satellite data," Papers 2011.12544, arXiv.org, revised Nov 2021.
    9. Matthieu Stigler & David Lobell, 2024. "Optimal index insurance and basis risk decomposition: an application to Kenya," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(1), pages 306-329, January.
    10. Stigler, Matthieu M. & Lobell, David, 2020. "Suitability of index insurance: new insights from satellite data," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304663, Agricultural and Applied Economics Association.
    11. Boyd, Chris M. & Bellemare, Marc F., 2022. "Why not insure prices? Experimental evidence from Peru," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 580-631.
    12. Nshakira-Rukundo, Emmanuel & Kamau, Juliet Wanjiku & Baumüller, Heike, 2021. "Determinants of uptake and strategies to improve agricultural insurance in Africa: a review," Environment and Development Economics, Cambridge University Press, vol. 26(5-6), pages 605-631, October.
    13. Laura Moritz & Lena Kuhn & Ihtiyor Bobojonov, 2025. "The Impact of Agricultural Index Insurance on Farmers' Welfare and Climate Resilience: Findings From Uzbekistan," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 69(3), pages 598-610, July.
    14. Belissa, Temesgen K. & Lensink, Robert & Marr, Ana, 2025. "The impact of bundling index insurance with credit and input vouchers: Experimental evidence from Ethiopia," Journal of Economic Behavior & Organization, Elsevier, vol. 234(C).
    15. Stoeffler, Quentin & Opuz, Gülce, 2022. "Price, information and product quality: Explaining index insurance demand in Burkina Faso," Food Policy, Elsevier, vol. 108(C).
    16. Keiko Fukumori & Ayumi Arai & Tomoya Matsumoto, 2022. "Risk Management for Smallholder Farmers: An Empirical Study on the Adoption of Weather-Index Crop Insurance in Rural Kenya," Working Papers 230, JICA Research Institute.
    17. Ceballos, Francisco & Robles, Miguel, 2020. "Demand heterogeneity for index-based insurance: The case for flexible products," Journal of Development Economics, Elsevier, vol. 146(C).
    18. Jensen, Nathaniel & Stoeffler, Quentin & Fava, Francesco & Vrieling, Anton & Atzberger, Clement & Meroni, Michele & Mude, Andrew & Carter, Michael, 2019. "Does the design matter? Comparing satellite-based indices for insuring pastoralists against drought," Ecological Economics, Elsevier, vol. 162(C), pages 59-73.
    19. Mogge, Lukas, 2023. "A District-Level Analysis of the Effect of Risk Exposure on the Demand for Index Insurance in Mongolia," Ruhr Economic Papers 1018, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    20. Arteaga, Julian & Carter, Michael R & Hobbs, Andrew, 2026. "Insuring those who bear the risk: The impact of gender-inclusive framing on insurance uptake in Kenya," World Development, Elsevier, vol. 201(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G52 - Financial Economics - - Household Finance - - - Insurance
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:180:y:2026:i:c:s0304387825002093. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/devec .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.