Targeting Weather Insurance Markets
Journal of Risk and Insurance (forthcoming)
44 Pages Posted: 14 Sep 2020 Last revised: 17 Nov 2020
Date Written: July 30, 2020
The suitability of insurance products often depends greatly on individual circum- stances. This paper examines the challenges of heterogeneity in a relatively new product, weather-indexed insurance. This index insurance product has been launched in over a dozen countries, with the goal of enabling households engaged in agricultural ac- tivity a means to manage risk. Using data from a large-scale field experiment, we build and calibrate a model which accounts for household investment decisions, including the scope for self-insurance via labor markets to (risky) wage work. Our results show that insurance is most valuable to households with reduced access to wage labor, or to those who face wages that are sensitive to rainfall risk. These findings have important implications for areas where index insurance is most effective.
Keywords: index insurance, self-insurance, labor markets, self-protection
JEL Classification: G22, D14, O13, O16, Q14
Suggested Citation: Suggested Citation