EconPapers    
Economics at your fingertips  
 

How basis risk and spatiotemporal adverse selection influence demand for index insurance: Evidence from northern Kenya

Nathaniel Jensen (), Andrew G. Mude and Christopher Barrett ()

Food Policy, 2018, vol. 74, issue C, 172-198

Abstract: Weather-related shocks are a major threat to the health and livelihoods of vulnerable farmers and herders in low-income, arid, and semi-arid regions of the world. Index insurance represents a promising tool for mitigating the impacts of such risk but in practice has exhibited low uptake rates by potential clients.Basis risk—the remaining risk faced by an insured individual—is widely acknowledged as the Achilles heel of index insurance, and yet direct measurements of basis risk have never been used to study its role in determining demand for index insurance. Further, client knowledge of season-specific environmental information and spatial variation in basis risk introduces the possibility of adverse selection, a feature often presumed to be absent for index products. We used longitudinal household data to determine which factors affected demand for index based livestock insurance (IBLI). While both price and the non-price factors studied previously are indeed important, our findings indicate that basis risk and spatiotemporal adverse selection also play a major role in determining demand for IBLI.

JEL-codes: D81 O16 Q12 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0306919217301392
Full text for ScienceDirect subscribers only

Related works:
Working Paper: How Basis Risk and Spatiotemporal Adverse Selection Influence Demand for Index Insurance: Evidence from Northern Kenya (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfpoli:v:74:y:2018:i:c:p:172-198

Access Statistics for this article

Food Policy is currently edited by J. Kydd

More articles in Food Policy from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-12-05
Handle: RePEc:eee:jfpoli:v:74:y:2018:i:c:p:172-198