A Spatial Econometric Approach to Designing and Rating Scalable Index Insurance in the Presence of Missing Data
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Index-Based Livestock Insurance has emerged as a promising market-based solution for insuring livestock against drought-related mortality. The objective of this work is to develop an explicit spatial econometric framework to estimate insurable indexes that can be integrated within a general insurance pricing framework. We explore the problem of estimating spatial panel models when there are missing dependent variable observations and cross-sectional dependence, and implement an estimable procedure which employs an iterative method. We also develop an out-of-sample efficient cross-validation mixing method to optimise the degree of index aggregation in the context of spatial index models.
Keywordsindex insurance spatial econometric models with missing data NDVI Kenya pastoralist livestock production cross-validation model mixing
This work was funded under International Livestock Research Institute Cooperative Work Agreement “ILRI-Cornell Collaborative Work Agreement for Special Joint Research Projects”. We would like to thank seminar participants at the 2014 International Agricultural Risk, Finance and Insurance Conference (Zurich) for helpful comments and suggestions. All errors are our own.
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