The Impact of Weather Insurance on Consumption, Investment, and Welfare
29 Pages Posted: 7 Nov 2012
Date Written: October 1, 2012
Abstract
I develop and estimate a dynamic stochastic optimization model to assess the impact of weather insurance on the consumption, investment, and welfare of farmers in developing countries. Weather insurance has the potential to provide large welfare gains, equivalent to a permanent increase in consumption by almost 17%. Moreover, it can allow for the adoption of riskier but more-productive seeds, further enhancing welfare. The low take-up that is often empirically observed is likely to be due to high insurance premium, basis risk, and the interplay with other uninsured risks.
Keywords: Weather insurance, welfare, consumption, investment, technology adoption
JEL Classification: G22, O1, O33, Q14
Suggested Citation: Suggested Citation