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Drought and Retribution: Evidence from a Large Scale Rainfall Index Insurance in Mexico

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Publication date
13/06/2013
Language:
English
Type of Publication:
Other
Focus Region:
Latin America & the Caribbean
Focus Topic:
Climate / Weather / Environment
Type of Risk:
Weather & Climate related
Natural disasters
Type of Risk Managment Option:
Risk transfer
Commodity:
Crops
Author
Alan Fuchs, Hendrik Wolff
Organization
University of California, Berkeley; University of Washington

This presentation details some basic information about index insurance, followed by a review of the Mexico case-study example. Drawing the following conclusions:

  • WII rapidly increasing in the last decade, but debate whether WII is effective
  • This is first paper to empirically study large scale WII on farmers behavior
  • Consistent with theory:
    • Yields increases (7.6%)
    • Income increases (8%) ? positive spillover effects
  • Mechanism of multipliers
    • Relaxed credit constraint
    • Maize area sowed decreases and substituted by likely more profitable crops
  • From individual farmers perspective WII passes CBA
  • From society perspective, our analysis hints that government likely overpays