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Demand for rainfall-index based insurance: a case study from Morocco

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  • Nancy McCarthy

Abstract

In this paper, we derive estimates for willingness to pay for rainfall-index based insurance contracts. Surveys were undertaken in four regions in Morocco, representing different mean and variability of rainfall conditions. Results indicate that respondents in the high variability regions preferred contracts that paid out more often (had higher rainfall trigger levels), and which were more costly. In fact, a strong majority of respondents indicated they would purchase these contracts at the fair-value price; the estimated median willingness to pay for such contracts was between 12-20 percent above the fair value contract. However, in the lower rainfall variability regions, the cheaper contracts with lower trigger values were the only contracts for which the estimated median willingness to pay was greater than the fair-value of the contract. Finally, estimated coefficients for explanatory variables such as human and physical assets, debt levels, etc. did not have consistent impacts, either across or within regions.

Suggested Citation

  • Nancy McCarthy, 2003. "Demand for rainfall-index based insurance: a case study from Morocco," EPTD discussion papers 106, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:eptddp:106
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    File URL: http://www.ifpri.org/sites/default/files/publications/eptdp106.pdf
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    References listed on IDEAS

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    1. DeShazo, J. R., 2002. "Designing Transactions without Framing Effects in Iterative Question Formats," Journal of Environmental Economics and Management, Elsevier, vol. 43(3), pages 360-385, May.
    2. Sarris, Alexander, 2002. "The demand for commodity insurance by developing country agricultural producers - theory and an application to cocoa in Ghana," Policy Research Working Paper Series 2887, The World Bank.
    3. Skees, Jerry*Gober, Stephanie*Varangis, Panos*Le, 2001. "Developing rainfall-based index insurance in Morocco," Policy Research Working Paper Series 2577, The World Bank.
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    Cited by:

    1. Paulson, Nicholas D. & Hart, Chad E., 2006. "A Spatial Approach to Addressing Weather Derivative Basis Risk: A Drought Insurance Example," 2006 Annual meeting, July 23-26, Long Beach, CA 21249, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Sonia Akter & Roy Brouwer & Saria Choudhury & Salina Aziz, 2009. "Is there a commercially viable market for crop insurance in rural Bangladesh?," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 14(3), pages 215-229, March.
    3. Nicholas D. Paulson & Chad E. Hart & Dermot J. Hayes, 2010. "A spatial Bayesian approach to weather derivatives," Agricultural Finance Review, Emerald Group Publishing, vol. 70(1), pages 79-96, May.
    4. Musshoff, Oliver & Odening, Martin & Xu, Wei, 2005. "Zur Bewertung von Wetterderivaten als innovative Risikomanagementinstrumente in der Landwirtschaft," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 54(4).
    5. Paulson, Nicholas David, 2007. "Three essays on risk and uncertainty in agriculture," ISU General Staff Papers 2007010108000016979, Iowa State University, Department of Economics.
    6. 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.
    7. Olila, Dennis Opiyo & Pambo, Kennedy Otieno, 2014. "Determinants of Farmers’ Awareness about Crop Insurance: Evidence from Trans-Nzoia County, Kenya," Miscellaneous Papers 165997, Agecon Search.

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