Is There Too Much Hype about Index-based Agricultural Insurance?
Individual crop insurance has been largely abandoned in developing countries and replaced by insurance pilots based on weather indices. These pilot schemes have encountered low demand. Research suggests that better-off farmers may already be insured via income diversification, their assets and social networks, and may achieve profit-maximising portfolios without formal insurance contracts. They would be interested in such contracts only if they reliably reduced their exposure to risk at lower costs than their self-insurance mechanisms. Conversely, poor farmers are not able to self-insure adequately, have to trade-off returns for reduced risk and could, therefore, benefit from a well-designed insurance. But they are cash/credit constrained and, therefore, cannot advance the money before sowing time to buy insurance that pays out only after the harvest. Index insurance, therefore, cannot be scaled up. Even if a few farmers purchase it, governments still will need to run relief programmes for the uninsured. Standard ways suggested to improve the index insurance, such as reducing basis risks, educating farmers and improving weather data, do not improve the ability of small farmers to purchase insurance and may not improve product design sufficiently to be competitive with self-insurance of the better-off farmers.
Volume (Year): 48 (2012)
Issue (Month): 2 (February)
|Contact details of provider:|| Web page: http://www.tandfonline.com/FJDS20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/FJDS20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carlo del Ninno & Kalanidhi Subbarao & Annamaria Milazzo, 2009.
"How to Make Public Works Work : A Review of the Experiences,"
World Bank Other Operational Studies
11718, The World Bank.
- Ninno, Carlo del & Subbarao, Kalanidhi & Milazzo, Annamaria, 2009. "How to make public works work : a review of the experiences," Social Protection and Labor Policy and Technical Notes 48567, The World Bank.
- Bhattamishra, Ruchira & Barrett, Christopher B., 2010. "Community-Based Risk Management Arrangements: A Review," World Development, Elsevier, vol. 38(7), pages 923-932, July.
- Carter, Michael R. & Galarza, Francisco & Boucher, Stephen, 2007. "Underwriting area-based yield insurance to crowd-in credit supply and demand," MPRA Paper 24326, University Library of Munich, Germany.
- Rosenzweig, Mark R. & Binswanger, Hans P., 1989.
"Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments,"
7455, University of Minnesota, Economic Development Center.
- Rosenzweig, Mark R & Binswanger, Hans P, 1993. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Economic Journal, Royal Economic Society, vol. 103(416), pages 56-78, January.
- Rosenzweig, Mark R. & Binswanger, Hans P., 1992. "Wealth, weather risk, and the composition and profitability of agricultural investments," Policy Research Working Paper Series 1055, The World Bank.
- Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2010. "Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam," American Economic Review, American Economic Association, vol. 100(1), pages 557-71, March.
- Daniel J. Clarke, 2016.
"A Theory of Rational Demand for Index Insurance,"
American Economic Journal: Microeconomics,
American Economic Association, vol. 8(1), pages 283-306, February.
- Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
- Barrett , Christopher B & Carter , Michael R & Ikegami , Munenobu, 2008. "Poverty traps and social protection," Social Protection and Labor Policy and Technical Notes 42752, The World Bank.
- Pender, John L., 1996. "Discount rates and credit markets: Theory and evidence from rural india," Journal of Development Economics, Elsevier, vol. 50(2), pages 257-296, August.
When requesting a correction, please mention this item's handle: RePEc:taf:jdevst:v:48:y:2012:i:2:p:187-200. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.