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Welfare Impacts of Index Insurance in the Presence of a Poverty Trap

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  • Chantarat, Sommarat
  • Mude, Andrew G.
  • Barrett, Christopher B.
  • Turvey, Calum G.

Abstract

This paper evaluates the welfare impacts of an index-based livestock insurance designed to compensate for satellite-based predicted livestock mortality in northern Kenya, where previous work has established the presence of poverty traps. We simulate household wealth dynamics based on rich panel and experimental data. The bifurcated livestock dynamics associated with the poverty trap gives rise to insurance valuation that is highly nonlinear in herd size. Estimated willingness to pay among vulnerable groups who most need insurance is, on average, lower than commercially viable rates. Targeted premium subsidization nonetheless appears to offer more cost-effective poverty reduction than need-based direct transfers.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:wdevel:v:94:y:2017:i:c:p:119-138
    DOI: 10.1016/j.worlddev.2016.12.044
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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).
    2. repec:eee:deveco:v:129:y:2017:i:c:p:14-28 is not listed on IDEAS
    3. repec:eee:jfpoli:v:74:y:2018:i:c:p:172-198 is not listed on IDEAS
    4. Jensen, Nathaniel & Barrett, Christopher B. & Mude, Andrew, 2014. "Index Insurance and Cash Transfers: A Comparative Analysis from Northern Kenya," MPRA Paper 61372, University Library of Munich, Germany.
    5. repec:pal:gpprii:v:42:y:2017:i:4:d:10.1057_s41288-017-0060-5 is not listed on IDEAS

    More about this item

    Keywords

    index insurance; asset risk; poverty traps; safety net; risk preference elicitation; Kenya;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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