A heterogeneous agent model of credit-linked index insurance and farm technology adoption

Farrin, Katie; Miranda, Mario J.

doi:10.1016/j.jdeveco.2015.05.001

Cited by 69 publications

(68 citation statements)

References 41 publications

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“…dwd.de/pub/CDC/grids_germany/daily/radolan/]. Moreover, these datasets can stimulate the further development of index insurance at the farm level, as there is a tendency in index insurance literature to concentrate on the ''meso'' level or agribusiness firms instead of focusing on single farms (Miranda and Gonzalez-Vega 2010;Farrin and Miranda 2015;Weber et al 2015). …”

Section: Discussionmentioning

confidence: 99%

Can Gridded Precipitation Data and Phenological Observations Reduce Basis Risk of Weather Index–Based Insurance?

Dalhaus

Finger

2016

Weather, Climate, and Society

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Adverse weather events occurring at sensitive stages of plant growth can cause substantial yield losses in crop production. Agricultural insurance schemes can help farmers to protect their income against downside risks. While traditional indemnity-based insurance schemes need governmental support to overcome market failure caused by asymmetric information problems, weather index–based insurance (WII) products represent a promising alternative. In WII the payout depends on a weather index serving as a proxy for yield losses. However, the nonperfect correlation of yield losses and the underlying index, the so-called basis risk, constitutes a key challenge for these products. This study aims to contribute to the reduction of basis risk and thus to the addition of risk-reducing properties of WII. More specifically, the study tests whether grid data for precipitation (vs weather station data) and phenological observations (vs fixed time windows for index determination) that are provided by public institutions can reduce spatial and temporal basis risk and thus improve the performance of WII. An empirical example of wheat production in Germany is used. No differences were found between using gridded and weather station precipitation, whereas the use of phenological observations significantly increases expected utility. However, even if grid data do not yet reduce basis risk, they enable overcoming several disadvantages of using station data and are thus useful for WII applications. Based on the study’s findings and the availability of these data in other countries, a massive potential for improving WII can be concluded.

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Section: Discussionmentioning

confidence: 99%

Can Gridded Precipitation Data and Phenological Observations Reduce Basis Risk of Weather Index–Based Insurance?

Dalhaus

Finger

2016

Weather, Climate, and Society

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“…Although interlinking weather index insurance with credit may encourage rural financial institutions to provide credit to smallholder farmers (Carter 2009), it is important to develop products that could easily be interlinked with insurance (see Swiss Re 2010) and ease supply side constraints such as providing timely credit with the required amount (McIntosh et al 2013). In addition, despite the theoretical justifications for interlinking insurance with credit (Farrin and Miranda 2015), there is lack of empirical evidence illustrating reductions in loan interest rates or insurance premiums due to the interlinkage. For instance, the study by McIntosh et al (2013), though a good example of actual implementation of interlinked products, is still a pilot project with both supply and demand side problems.…”

Section: Interlinking Weather Index Insurance With Creditmentioning

confidence: 99%

Weather index insurance for managing drought risk in smallholder agriculture: lessons and policy implications for sub-Saharan Africa

2015

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This paper reviews recent advances in, and challenges for, weather index insurance for managing drought risk in smallholder agriculture, with a focus on sub-Saharan Africa. Despite its promise to integrate local agricultural risk smoothing with insurance principles, there remain many challenges to its mainstreaming in low income countries. Scaling up of weather index insurance pilot projects is particularly constrained by high-basis risk, related to the divergence between the calculated weather index and actual productivity loss on the farm. Various options may be considered to enhance uptake of weather index insurance. Linking reliable weather data with location-specific crop and agronomic conditions using flexible geospatial crop modeling tools is one option to reduce the basis risk. The other option is interlinking weather index insurance with credit or safety nets. In the end, insurance should be offered as part of a wider set of business services that provide real value to smallholders. Finally, the review acknowledges that the suggested conceptual solutions, especially interlinking index based weather insurance with credit will require more empirical evidence on the extent to which insurance would reduce the cost of borrowing and make credit more accessible to the smallholder farmers.

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“…This is true when they have access to informal risk-coping mechanisms (Farrin and Miranda, 2015). This is especially the case when insurance is paired with access to other types of financing.…”

Section: Role Of Insurance Companies In Technological Adoptionmentioning

confidence: 99%

Managing Risk in Livestock Farming: The Role of Insurance Companies

Jokhio¹,

Abro²,

Alaali³

2016

International Journal of Financial Research

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This research analyses the risk associated with livestock farming in relation to the utilization of insurance policies and as a risk management mechanism. Ninety percent of the farmers in this study were unaware of the existence of insurance plans; the need for risk protection among vulnerable, low-income and poor farmers is crucial, especially for those who depend on livestock for their livelihood. Data was collected from insurance companies regarding their different plans for protecting farmers and commercial livestock farmers. Not only livestock farmers face risks, but insurance companies as well. Educating farmers about how to manage the risks associated with livestock business is absolutely necessary. In addition, farmers need social protection and interventions from public, private, or charitable organizations.

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A heterogeneous agent model of credit-linked index insurance and farm technology adoption

Cited by 69 publications

References 41 publications

Can Gridded Precipitation Data and Phenological Observations Reduce Basis Risk of Weather Index–Based Insurance?

Can Gridded Precipitation Data and Phenological Observations Reduce Basis Risk of Weather Index–Based Insurance?

Weather index insurance for managing drought risk in smallholder agriculture: lessons and policy implications for sub-Saharan Africa

Managing Risk in Livestock Farming: The Role of Insurance Companies

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