Weather Index Insurance and Shock Coping: Evidence from Mexico's Cadena Program
37 Pages Posted: 19 Jul 2016
Date Written: June 21, 2016
Weather risk and incomplete insurance markets are significant contributors to poverty for rural households in developing countries. Weather index insurance has emerged as a possible tool for overcoming these challenges. This paper provides evidence on the impact of weather index insurance from a pioneering, large-scale insurance program in Mexico. The focus of this analysis is on the ex-post effects of insurance payments. A regression discontinuity design provides find evidence that payments from weather index insurance allow farmers to cultivate a larger land area in the season following a weather shock. Households in municipalities receiving payment also appear to have larger per capita expenditures and income in the subsequent year, although there is suggestive evidence that some of this increase is offset by a decrease in remittances. While the cost of insurance appears to be high relative to the payouts, the benefits exceed the costs for a substantial range of outcomes.
Keywords: Non Governmental Organizations, Public Finance Decentralization and Poverty Reduction, Disaster Management, Regional Urban Development, Public Sector Management and Reform, Hazard Risk Management, Urban Economics, City to City Alliances, Urban Economic Development, Urban Communities, National Urban Development Policies & Strategies, Social Risk Management, Public Sector Economics, Economics and Institutions, Adaptation to Climate Change
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