Weather index drought insurance: an ex ante evaluation for millet growers in Niger

Antoine Leblois, Philippe Quirion, Agali Alhassane and Seydou Traore

No 120378, 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland from European Association of Agricultural Economists

Abstract: In the Sudano-Sahelian region, which includes South Niger, the inter-annual variability of the rainy season is high and irrigation is scarce. As a consequence, bad rainy seasons have a massive impact on crop yield and regularly entail food crises. Traditional insurances based on crop damage assessment are not available because of asymmetric information and high transaction costs compared to the value of production. We assess the risk mitigation capacity of an alternative form of insurance which has been implemented in India since 2003: insurance based on a weather index. We compare the capacity of various weather indices to increase utility of a representative risk-averse farmer. We show the importance of using plot-level yield data rather than village averages, which bias results. We also illustrate the need for out-of-sample estimations in order to avoid overfitting. Even with the appropriate index and assuming a substantial risk aversion, we find a limited gain of implementing insurance, roughly corresponding to, or slightly exceeding, the cost of implementing such insurances observed in India. However, when we treat separately the plots with and without fertilizers, we show that the benefit of insurance is higher in the former case. This suggests that insurances may increase the use of risk-increasing inputs like fertilizers and improved cultivars, hence average yields, which are very low in the region.

Keywords: Crop Production/Industries; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 13
Date: 2011
New Economics Papers: this item is included in nep-afr, nep-agr and nep-ias
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Weather Index Drought Insurance: An Ex Ante Evaluation for Millet Growers in Niger (2014)
Working Paper: Weather-index drought insurance: an ex ante evaluation for millet growers in Niger (2011)
Working Paper: Weather-index drought insurance: an ex ante evaluation for millet growers in Niger (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae11:120378

DOI: 10.22004/ag.econ.120378

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