A viable and cost-effective weather index insurance for rice in Indonesia
Bethanna Jackson and
Ilan Noy ()
Additional contact information
Aditya Kusuma: Victoria University of Wellington
Bethanna Jackson: Victoria University of Wellington
The Geneva Risk and Insurance Review, 2018, vol. 43, issue 2, 186-218
Abstract The potentially adverse effects of droughts on agricultural output are obvious. Currently, Indonesian rice farmers have little financial protection from climate risk via catastrophic weather risk transfer tools. Done well, a weather index insurance (WII) program can not only provide resources that enable recovery, but can also facilitate the adoption of prevention and adaptation measures and incentivize risk reduction. However, implementations of WII programs have faced difficulties because of basis risk—among several other obstacles. Here, we quantify the applicability, viability, and likely cost of introducing a WII for droughts for rice production in Indonesia. To reduce basis risk, we construct district-specific indices that are based on the estimation of Panel Geographically Weighted Regressions models. With these spatial models, and detailed district level data on past agricultural productivity and weather conditions, we identify an algorithm that can generate an effective and actuarially sound WII in some districts but not in others. We then measure its effectiveness in reducing income volatility for farmers by reducing this basis risk, at the district level. We end by calculating an actuarially robust and welfare-enhancing price for this scheme and prioritize the districts in which it can be implemented.
Keywords: Index; Parametric; Indonesia; Rice; Agricultural insurance; Drought (search for similar items in EconPapers)
JEL-codes: Q15 Q18 Q54 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1057/s10713-018-0033-z Abstract (text/html)
Access to full text is restricted to subscribers.
Journal Article: A viable and cost-effective weather index insurance for rice in Indonesia (2018)
Working Paper: A Viable and Cost-Effective Weather Index Insurance for Rice in Indonesia (2017)
Working Paper: A viable and cost-effective weather index insurance for rice in Indonesia (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:pal:genrir:v:43:y:2018:i:2:d:10.1057_s10713-018-0033-z
Ordering information: This journal article can be ordered from
Access Statistics for this article
The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich
More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla ().