Environmental and Resource Economics

, Volume 57, Issue 4, pp 527–551

Weather Index Drought Insurance: An Ex Ante Evaluation for Millet Growers in Niger

  • Antoine Leblois
  • Philippe Quirion
  • Agali Alhassane
  • Seydou Traoré
Article

DOI: 10.1007/s10640-013-9641-3

Cite this article as:
Leblois, A., Quirion, P., Alhassane, A. et al. Environ Resource Econ (2014) 57: 527. doi:10.1007/s10640-013-9641-3

Abstract

In the Sudano-Sahelian region, which includes South Niger, the inter-annual variability of the rainy season is high and irrigation is limited. As a consequence, bad rainy seasons have a massive impact on crop yield and regularly result in food crises. Traditional insurance policies based on crop damage assessment are not available because of asymmetric information and high transaction costs compared to the value of production. We assess the risk mitigation capacity of an alternative form of insurance which has been implemented at a large scale in India since 2003: insurance based on a weather index. We compare the efficiency of various weather indices to increase the expected utility of a representative risk-averse farmer. We show the importance of using plot-level yield data rather than village averages, which bias results due to the presence of idiosyncratic shocks. We also illustrate the need for out-of-sample estimations in order to avoid overfitting. Even with the appropriate index and assuming substantial risk aversion, we find a limited gain of implementing insurance, which roughly corresponds to, or slightly exceeds, the cost observed in India for implementing such insurance policies. However, when we separately treat the plots with and without fertilisers separately, we see that the benefit of insurance is slightly higher in the former case. This suggests that insurance policies may slightly increase the use of risk-increasing inputs such as fertilisers and improved cultivars, and hence improve average yields, which remain very low in the region.

Keywords

Agriculture Weather Index-based insurance 

JEL Classifications

O12 Q12 Q18 

Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  • Antoine Leblois
    • 1
  • Philippe Quirion
    • 2
  • Agali Alhassane
    • 3
  • Seydou Traoré
    • 3
  1. 1.Centre International de Recherche sur l’Environnement et le Développement (CIRED)ParisFrance
  2. 2.Laboratoire de Météorologie Dynamique (LMD)CIREDParisFrance
  3. 3.Centre Régional Agrhymet (CRA)NiameyNiger

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