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

de Nicola, Francesca, The Impact of Weather Insurance on Consumption, Investment, and Welfare (October 1, 2012). Available at SSRN: https://ssrn.com/abstract=2172422 or http://dx.doi.org/10.2139/ssrn.2172422

Francesca De Nicola (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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