Can Financial Markets be Tapped to Help Poor People Cope with Weather Risks?
Poor households in rural areas are particularly vulnerable to risks that reduce incomes and increase expenditures. Most past research has focused on risk-coping strategies for the rural poor, specially on micro-level and household actions. These are risks that can been shared within a community or extended family. These strategies are effective for independent risks, but ineffective for covariate or systemic risks. The authors focus on private and public mechanisms for managing covariate risk for natural disasters. When many households within the same community face risks that create losses for all, traditional coping mechanisms are likely to fail. Such covariate risks are not uncommon in many developing countries, especially where farming remains a major source of income. The authors focus on risks related to weather events (such as excess rain, droughts, freezes, and high winds) that have a severe impact on rural incomes. Weather insurance could cover the covariate risk for a community of poor households through formal and informal risk-sharing arrangements among households that are purchasing these weather contracts. Given recent Mexican innovations targeted at helping the poor cope with catastrophe weather events, the authors use Mexico as a case study. In Mexico, poor households are exposed to systemic risks, such as droughts and floods, that affect the economic livelihood of their region. Catastrophic insurance is useful for small farmers, although commercially oriented small farmers may wish to obtain coverage for less catastrophic events. Weather insurance could meet this need. It pays out according to the frequency and intensity of specific weather events. Because weather insurance depends on the occurrences and objective measure of intensity of a specific event, it does not require individual farm inspection that can be very costly for small farm. The authors argue that a key issue of delivering insurance to small farmers is the existence of producer organ
(This abstract was borrowed from another version of this item.)
|Date of creation:||2002|
|Date of revision:|
|Contact details of provider:|| Postal: Katajanokanlaituri 6B, 00160 Helsinki|
Web page: http://www.wider.unu.edu/
More information through EDIRC
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.:
- Dawson, P. J., 1988. "Labour on the family farm: A theory under uncertainty," Agricultural Economics, Blackwell, vol. 1(4), pages 365-380, January.
- Epstein, Richard A, 1996. "Catastrophic Responses to Catastrophic Risks," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 287-308, May.
- Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
- Frank Ellis, 1998. "Household strategies and rural livelihood diversification," Journal of Development Studies, Taylor & Francis Journals, vol. 35(1), pages 1-38.
- Louis Kaplow, 1989.
"Incentives and Government Relief for Risk,"
NBER Working Papers
3007, National Bureau of Economic Research, Inc.
- Dawson, P. J., 1988. "Labour on the Family Farm: a Theory under Uncertainty," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 1(4), January.
- Kunreuther, Howard, 1996. "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 171-87, May.
- Kimberly A. Zeuli, 1999. "New Risk-Management Strategies for Agricultural Cooperatives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(5), pages 1234-1239.
- Takeshi Sakurai & Thomas Reardon, 1997. "Potential Demand for Drought Insurance in Burkina Faso and Its Determinants," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1193-1207.
- J. Roy Black & Barry J. Barnett & Yingyao Hu, 1999. "Cooperatives and Capital Markets: The Case of Minnesota-Dakota Sugar Cooperatives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(5), pages 1240-1246.
- Kunreuther, Howard & Slovic, Paul, 1978. "Economics, Psychology, and Protective Behavior," American Economic Review, American Economic Association, vol. 68(2), pages 64-69, May.
- Siegel, Paul B. & Alwang, Jeffrey, 1999. "An asset-based approach to social risk management : a conceptual framework," Social Protection and Labor Policy and Technical Notes 21324, The World Bank.
- Skees, Jerry R., 2000. "A role for capital markets in natural disasters: a piece of the food security puzzle," Food Policy, Elsevier, vol. 25(3), pages 365-378, June.
- Kunreuther, Howard & Meszaros, Jacqueline & Hogarth, Robin M. & Spranca, Mark, 1995. "Ambiguity and underwriter decision processes," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 337-352, May.
- Skees, Jerry & Hazell, P. B. R. & Miranda, Mario, 1999. "New approaches to crop yield insurance in developing countries:," EPTD discussion papers 55, International Food Policy Research Institute (IFPRI).
- Noll, Roger G, 1996. "The Complex Politics of Catastrophe Economics," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 141-46, May.
- Jerry R. Skees, 1999. "Opportunities for Improved Efficiency in Risk Sharing Using Capital Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(5), pages 1228-1233.
- Gautam, Madhur & Hazell, Peter & Alderman, Harold, 1994. "Rural demand for drought insurance," Policy Research Working Paper Series 1383, The World Bank.
- Dwight M. Jaffee & Thomas Russell, 1996. "Catastrophe Insurance, Capital Markets and Uninsurable Risks," Center for Financial Institutions Working Papers 96-12, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Peter B. R. Hazell, 1992. "The appropriate role of agricultural insurance in developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 4(6), pages 567-581, November.
When requesting a correction, please mention this item's handle: RePEc:unu:wpaper:dp2002-23. 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: (Bruck Tadesse)The email address of this maintainer does not seem to be valid anymore. Please ask Bruck Tadesse to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.