Selfâ€ protection from weather risk using improved maize varieties or offâ€ farm income and the propensity for insurance
Sebastain Awondo (),
Esendugue G. Fonsah and
Agricultural Economics, 2017, vol. 48, issue 1, 61-76
We investigate how selfâ€ protection from the adoption of Improved Maize Varieties (IMV) and offâ€ farm income affects risk premiums for smallholder maize producers in Uganda. To unbundle these effects, we specify the cost of risk to explicitly capture four risk componentsâ€”mean, variance, skewness, and kurtosis. Using unique plotâ€ level panel data for Uganda, we estimate and test moments of a flexible production function based on an expanded form of the Johnson SU family distribution and proceed to simulate the degree of responsiveness of risk premiums and welfare estimates to marginal changes in the share of land under IMV and offâ€ farm income. Scenarios of joint adoption of IMV accompanied with low and high application of inorganic fertilizer, and the effect of offâ€ farm income when there is high and low supply of farm labor are examined. Results show that the use of IMV and offâ€ farm income substantially reduces risk premiums and the individual effect is much higher under low fertilizer application and high supply of farm labor, respectively. Thus implying that selfâ€ protection is likely to reduce the propensity for index insurance especially if its design fails to consider the reduction in downside risk.
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Working Paper: Self-Protection from Weather Risk using Improved Maize Varieties or Off-Farm Income and the Propensity for Insurance (2015)
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