The Impact of Weather Insurance on Consumption, Investment, and WelfareNo 548, 2011 Meeting Papers from Society for Economic Dynamics Abstract: Weather variations crucially affect the wellbeing of farmers in developing countries. I develop and estimate a dynamic stochastic optimization model to assess the impact of weather insurance on the consumption, investment, and welfare for farmers in developing countries. The parameters of the model are pinned down with a combination of calibration and structural estimation using data from Malawi. Contrary to some past work, I find that weather insurance has the potential to provide substantial welfare gains equivalent to almost a 17% permanent increase in consumption. These gains can be magnified especially for the poorest households by contemporaneously extending credit to finance the additional desired investment. In an extension of the model I also show that weather insurance can allow for the adoption of riskier but more-productive improved seeds, further boosting farmers' welfare. Finally, I explore the extent to which the interplay with other uninsured risks, the presence of basis risk, and a loading factor on the insurance premium may lower the welfare gains from weather insurance, and lead to low take-up as is often observed empirically. Date: 2011 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:548 Access Statistics for this paper More papers in 2011 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC. |
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