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Index Insurance, Production Practices, and Probabilistic Climate Forecasts

Author

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  • Carriquiry, Miguel A.
  • Osgood, Daniel E.
Abstract
The failure of the development of commercially viable traditional crop insurance products and innovations in financial markers has fed a renewed interest in the search for alternatives to help producers in developing countries manage their risk exposure. Salient among these is the proposal of several index insurance schemes against weather events. Among the basic tenets are that the presence of index insurance allows producers to intensify their operations and reduce the risks of default and hence may induce creditors to offer loans at affordable rates. The two factors combined are touted as key to help producers in developing countries escape poverty traps. Improvements in seasonal climate forecasts create challenges for the design and effective functioning of the insurance against climate risks. However, very little is known about potential synergies or conflicting impacts of these two institutions, and the interactions between them and input management decisions by producers. We find that insurance and forecast may have synergistic or conflicting effects on input decisions. In the presence of (state contingent) actuarially fair insurance, producers may prefer the forecast information not to be available, especially if the management options available do not result in sufficient changes in profitability. Perhaps surprisingly, we find that forecast information may induce producers to increase the amount of insurance purchased.

Suggested Citation

  • Carriquiry, Miguel A. & Osgood, Daniel E., 2006. "Index Insurance, Production Practices, and Probabilistic Climate Forecasts," 2006 Annual meeting, July 23-26, Long Beach, CA 21463, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea06:21463
    DOI: 10.22004/ag.econ.21463
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    References listed on IDEAS

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    Cited by:

    1. Osgood, Daniel E. & Suarez, Pablo & Hansen, James & Carriquiry, Miguel & Mishra, Ashok, 2008. "Integrating seasonal forecasts and insurance for adaptation among subsistence farmers : the case of Malawi," Policy Research Working Paper Series 4651, The World Bank.
    2. Daron, Joseph D. & Stainforth, David A., 2014. "Assessing pricing assumptions for weather index insurance in a changing climate," LSE Research Online Documents on Economics 59154, London School of Economics and Political Science, LSE Library.
    3. Ya-Wen Chiueh & Cheng-Chang Huang & Chih-Hung Tan, 2013. "Modeling The Rice-Climate Indices In Taiwan," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 4(03), pages 1-19.

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