The low observed uptake of non-subsidised index-based insurance policies in developing countries has been puzzling researchers for about a decade. This paper analyses the role of drought frequency in farmers' demand for index-based insurance in developing countries. While it is typically assumed that an increase in exposure to risk would result in higher demand for index insurance, this paper finds the opposite: an increase in drought frequency may result in lower demand for index insurance under fairly standard conditions. In an expected utility model, we show that the demand for insurance is an inverted U function of drought frequency. We further show that downside basis risk decreases insurance demand under frequent drought conditions. It implies that insurance against similar but more frequent events cannot meet large demand from farmers. To check the empirical relevance of these effects, we conduct an insurance field experiment in Burkina Faso with 205 farmers. We analyse insurance demand for different drought frequencies, different levels of basis risks and different loading factors through incentivised lottery choices. This analysis confirms that for higher drought frequencies, insurance demand is lower. Insurance demand also decreases with basis risk and the loading factor.
The low observed uptake of non-subsidised index-based insurance policies in developing countries has been puzzling researchers for about a decade. This paper analyses the role of drought frequency in farmers' demand for index-based insurance in developing countries. While it is typically assumed that an increase in exposure to risk would result in higher demand for index insurance, this paper finds the opposite: an increase in drought frequency may result in lower demand for index insurance under fairly standard conditions. In an expected utility model, we show that the demand for insurance is an inverted U function of drought frequency. We further show that downside basis risk decreases insurance demand under frequent drought conditions. It implies that insurance against similar but more frequent events cannot meet large demand from farmers. To check the empirical relevance of these effects, we conduct an insurance field experiment in Burkina Faso with 205 farmers. We analyse insurance demand for different drought frequencies, different levels of basis risks and different loading factors through incentivised lottery choices. This analysis confirms that for higher drought frequencies, insurance demand is lower. Insurance demand also decreases with basis risk and the loading factor.
Titre
en
How might climate change influence farmers' demand for index-based insurance?
Auteur(s)
Antoine Leblois1
, Tristan Le Cotty2, 3
, Elodie Maître d'Hôtel4, 3
1
CEE-M -
Centre d'Economie de l'Environnement - Montpellier
( 1002397 )
- 2 Place Viala
INRAE - MSA
34060 Montpellier Cedex 2
- France
Université de Montpellier ( 410122 )
;
Centre National de la Recherche Scientifique UMR 5211 ( 441569 )
;
Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement UMR1135 ( 577435 )
;
Institut Agro - Montpellier SupAgro ( 1090073 )
;
Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement ( 1042499 )
2
CIRED -
Centre International de Recherche sur l'Environnement et le Développement
( 1042364 )
- 45 bis, avenue de la Belle Gabrielle - 94736 Nogent-sur-Marne Cedex
- France
Centre de Coopération Internationale en Recherche Agronomique pour le Développement UMR56 ( 11574 )
;
École des hautes études en sciences sociales ( 99539 )
;
AgroParisTech ( 148117 )
;
École des Ponts ParisTech ( 301545 )
;
Université Paris-Saclay ( 419361 )
;
Centre National de la Recherche Scientifique UMR8568 ( 441569 )
3
Cirad-ES -
Département Environnements et Sociétés
( 420902 )
- Campus international de Baillarguet TA C-DIR / B 34398 Montpellier Cedex 5 France
- France
Centre de Coopération Internationale en Recherche Agronomique pour le Développement ( 11574 )
4
UMR MOISA -
Marchés, Organisations, Institutions et Stratégies d'Acteurs
( 1001955 )
- 2 Place Pierre Viala 34 060 Montpellier Cedex 1
- France
Centre de Coopération Internationale en Recherche Agronomique pour le Développement UMR 99 ( 11574 )
;
Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier ( 455595 )
;
Centre International de Hautes Études Agronomiques Méditerranéennes ( 302069 )
;
Institut national d’études supérieures agronomiques de Montpellier UMR_A 1110 ( 474617 )
;
Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement UMR 1110 ( 577435 )
G - Financial Economics/G.G2 - Financial Institutions and Services/G.G2.G22 - Insurance • Insurance Companies • Actuarial Studies
O - Economic Development, Innovation, Technological Change, and Growth/O.O1 - Economic Development/O.O1.O12 - Microeconomic Analyses of Economic Development
Q - Agricultural and Natural Resource Economics • Environmental and Ecological Economics/Q.Q1 - Agriculture/Q.Q1.Q18 - Agricultural Policy • Food Policy
Domaine(s)
Sciences de l'Homme et Société/Economies et finances
Sciences de l'Homme et Société/Etudes de l'environnement
Mots-clés
en
basis risk, index-based insurance, extreme events, frequency