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Public Investments Targeted Toward Innovation in Risk Transfer

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Publication date
02/01/2007
Number of Pages
11
Language:
English
Type of Publication:
Studies
Focus Region:
Global
Focus Topic:
Institutions / Organizations
Market / Trade
Rural Finance / Insurance
Type of Risk:
Policy & institutional
Political
Type of Risk Managment Option:
Risk transfer
Commodity:
Other
Author
Jerry Skees and Jason Hartell
Organization
GlobalAgRisk, Inc.

This paper presents a role for public investments in developing countries targeted at innovation in market-based risk sharing via insurance-like mechanisms for natural disasters that impede agricultural investments and development. Insurance markets for natural disaster risk are largely missing in developing countries. Fiscal constraints limit the degree to which developing country governments can subsidize markets that would insure against agricultural losses due to natural disasters. Nonetheless, there are specific things that governments can do to facilitate the development of such risk transfer markets. The importance of agricultural risk transfer is understated when viewed in isolation. Well functioning risk transfer markets (such as familiar insurance and commodity exchange markets) can be critical in completing rural financial markets that include savings and credit services. When these risk transfer markets are missing, credit rationing, unfavorable terms of credit, unsecured financial exposure, and household asset depletion are more likely.