Downloads: 7

Files in This Item:
File Description SizeFormat 
NREDP2021_02.pdf4.89 MBAdobe PDFView/Open
Title: Basis Risk and Low Demand for Weather Index Insurance
Authors: Kodama, Wataru
Miura, Ken  kyouindb  KAKEN_id  orcid (unconfirmed)
Sakurai, Takeshi
Keywords: Weather index insurance
basis risk
rational demand model
Issue Date: 10-Nov-2021
Publisher: Division of Natural Resource Economics, Graduate School of Agriculture, Kyoto University
Journal title: NRE-DP: Natural Resource Economics Discussion Papers
Volume: 2021-02
Start page: 1
End page: 43
Abstract: Basis risk --an imperfect correlation between an aggregate index and idiosyncratic crop damage-- has been widely recognized as a major impediment to embracing index insurance. However, empirical evidence is still scarce because of the difficulty in its direct measurement. In this study, we estimate the impact of the basis risk on demand for a rainfall index insurance product using household survey data from rural Zambia. First, we develop a simple model of insurance demand to motivate our econometric specifications. Then, we quantify the basis risk for each surveyed household with past rainfall data at the plot-level. Exploiting changes in insurance design across years, we use within-household variations in the basis risk to estimate its impact. Empirical results illustrate that the basis risk has significant and adverse effects on insurance demand. Despite its statistical significance, our results also suggest that minimizing the basis risk would not yield enough economic benefits to offset the associated costs.
Description: Natural Resource Economics Discussion Papers are preliminary research reports by members of the GSA-NRE Kyoto University circulated for comments and suggestions. They have not been externally peer-reviewed or been subject to the review by the editorial board.
Rights: All rights are reserved by the authors.
Related Link:
Appears in Collections:NRE-DP: Natural Resource Economics Discussion Papers

Show full item record

Export to RefWorks

Export Format: 

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.