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The Effect of Index Insurance on Returns to Farm Inputs: Exploring Alternatives to Zambia's Fertilizer Subsidy Program

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  • Murray, Anthony G
  • Farrin, Katie

Abstract

A significant volume of research has investigated input subsidy programs in Africa, where government expenditures on such programs are non-trivial. This paper uses panel data from a sample of farm households in Zambia to compare how fertilizer use decisions change in the presence of a formal insurance market. If returns to fertilizer improve under an insurance regime, the use of index insurance can be an alternative to or complement of existing input subsidy programs in the country. After estimating the cost of a simple zero-one, actuarially fair index insurance product that is mandatory for farmers who purchase fertilizer, we run simulations to explore the effect of insurance on household investment in fertilizer. Results show that index insurance, by reducing the disposable wealth of households in years where no payouts occur, can dampen demand for fertilizer at the farm level.

Suggested Citation

  • Murray, Anthony G & Farrin, Katie, 2014. "The Effect of Index Insurance on Returns to Farm Inputs: Exploring Alternatives to Zambia's Fertilizer Subsidy Program," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170240, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea14:170240
    DOI: 10.22004/ag.econ.170240
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    References listed on IDEAS

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    1. Yonas Alem & Mintewab Bezabih & Menale Kassie & Precious Zikhali, 2010. "Does fertilizer use respond to rainfall variability? Panel data evidence from Ethiopia," Agricultural Economics, International Association of Agricultural Economists, vol. 41(2), pages 165-175, March.
    2. Akinwumi A. Adesina & Moses M. Zinnah, 1993. "Technology characteristics, farmers' perceptions and adoption decisions: A Tobit model application in Sierra Leone," Agricultural Economics, International Association of Agricultural Economists, vol. 9(4), pages 297-311, December.
    3. Adesina, Akinwumi A. & Zinnah, Moses M., 1993. "Technology characteristics, farmers' perceptions and adoption decisions: A Tobit model application in Sierra Leone," Agricultural Economics, Blackwell, vol. 9(4), pages 297-311, December.
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    Cited by:

    1. Ngoma,Hambulo,Finn,Arden Jeremy,Kabisa,Mulako, 2021. "Climate Shocks, Vulnerability, Resilience and Livelihoods in Rural Zambia," Policy Research Working Paper Series 9758, The World Bank.
    2. Sibiko, Kenneth W. & Qaim, Matin, 2017. "Weather Index Insurance, Agricultural Input Use, and Crop Productivity in Kenya," GlobalFood Discussion Papers 256214, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    3. Kenneth W. Sibiko & Matin Qaim, 2020. "Weather index insurance, agricultural input use, and crop productivity in Kenya," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 12(1), pages 151-167, February.

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    Food Security and Poverty; International Development;

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