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Does Index Insurance Help Households Recover from Disaster? Evidence from IBLI Mongolia

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  • Veronika Bertram-Huemmer
  • Kati Kraehnert

Abstract

This article investigates the impact that indemnity payments from index insurance have on the asset recovery of households following a catastrophic weather disaster. Our focus is on the Index-Based Livestock Insurance (IBLI) in Mongolia. We analyze the effect of IBLI indemnity payments after a once-every-50-year winter disaster struck Mongolia over the winter of 2009/2010. The analysis is based on three waves of a household panel survey implemented in western Mongolia two to five years after the shock. We employ the bias-corrected matching estimator to account for selection into purchasing IBLI. Results indicate that pastoralist households purchasing IBLI before the shock recover faster from shock-induced asset losses than comparable uninsured households. We find a significant, positive, and economically large effect of IBLI indemnity payments on herd size one to three years after the shock. Four years after the shock, the effect vanishes. Results are robust to defining post-shock livestock recovery in various ways, as well as the choice of covariates and the use of alternative propensity score estimators. An analysis of shock-coping strategies suggests that IBLI appears to have relieved households from credit constraints. In addition, indemnity payments helped herders avoid selling and slaughtering animals, thus smoothing their productive asset base. Our article is among the first to provide evidence on the beneficial effects of index insurance after a weather shock in a developing economy.

Suggested Citation

  • Veronika Bertram-Huemmer & Kati Kraehnert, 2018. "Does Index Insurance Help Households Recover from Disaster? Evidence from IBLI Mongolia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(1), pages 145-171.
  • Handle: RePEc:oup:ajagec:v:100:y:2018:i:1:p:145-171.
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    Cited by:

    1. Aditya Kusuma & Bethanna Jackson & Ilan Noy, 2018. "A viable and cost-effective weather index insurance for rice in Indonesia," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 43(2), pages 186-218, September.
    2. Ricome, Aymeric & Affholder, François & Gérard, Françoise & Muller, Bertrand & Poeydebat, Charlotte & Quirion, Philippe & Sall, Moussa, 2017. "Are subsidies to weather-index insurance the best use of public funds? A bio-economic farm model applied to the Senegalese groundnut basin," Agricultural Systems, Elsevier, vol. 156(C), pages 149-176.
    3. repec:eee:agisys:v:168:y:2019:i:c:p:101-111 is not listed on IDEAS
    4. repec:eee:agisys:v:172:y:2019:i:c:p:28-46 is not listed on IDEAS
    5. repec:pal:gpprii:v:44:y:2019:i:3:d:10.1057_s41288-019-00132-y is not listed on IDEAS

    More about this item

    Keywords

    Extreme weather events; index insurance; livestock; Mongolia;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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