Index insurance and basis risk: A reconsideration

• 成果类型: Article
• 署名作者: Lichtenberg, Erik; Iglesias, Eva
• 署名单位: University System of Maryland; University of Maryland College Park; Universidad Politecnica de Madrid; Centro de Estudios e Investigacion para la Gestion de Riesgos Agrarios Medioambientales CEIGRAM; Universidad Politecnica de Madrid
• 刊物名称: JOURNAL OF DEVELOPMENT ECONOMICS
• ISSN/ISSBN: 0304-3878
• DOI: 10.1016/j.jdeveco.2022.102883
• 发表日期: 2022
• 关键词: risk; Agricultural insurance; Index insurance; Development; Rural financial markets

摘要

Index insurance has been seen as an important tool for managing the risks faced by farmers in developing countries but uptake has been disappointingly low. Basis risk is often cited as one of the main reasons for the lack of uptake. We investigate the role of basis risk in greater depth by considering contracts that allow farmers to choose the level of the index that triggers an indemnity in addition to coverage. We show that risk averse farmers will select trigger levels to protect against catastrophic outcomes, even if downside basis risk increases. A numerical simulation model bears out our theoretical results.