Drought and Retribution : Evidence from a Large-Scale Rainfall-Indexed Insurance Program in Mexico

Although weather shocks are a major source of income fluctuation, most of the world's poor lack insurance coverage against them. Absence of formal insurance contributes to poverty traps, as investment decisions are conflicted with risk managem...

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Main Authors:	Fuchs, Alan, Wolff, Hendrik
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2016
Subjects:	RISKS HOUSEHOLD SURVEY RISK SHARING ARRANGEMENTS RIGHTS POOR RURAL HOUSEHOLD CHECKS PRODUCTION RISK MANAGEMENT STRATEGIES POVERTY LEVELS ILLITERACY INCOME INTEREST AGRICULTURAL PRODUCTION PROPERTY RIGHTS EXCHANGE AGRICULTURAL DEVELOPMENT COUNTERFACTUAL PROGRAMS INFORMATION LABOR FORCE POLITICAL ECONOMY INSURANCE POLICIES EFFECTS INCENTIVES DURABLE ASSETS PRIVATE INSURANCE REAL INCOME CROP VARIETIES RURAL POPULATION BENEFICIARIES INTERNATIONAL BANK MEASURES INSURANCE MARKET INSURANCE COMPANY POLICYHOLDERS CROP INSURANCE RURAL HOUSEHOLD RURAL HOUSEHOLDS CASH CROPS TRAINING DEVELOPMENT ECONOMICS MORAL HAZARD HOUSEHOLD HEAD INSURANCE PRODUCT AGRICULTURAL TECHNOLOGY CONTRACTS PRODUCTIVITY TRANSFERS MARKETS HOUSEHOLD INCOME ORGANIZATIONS RATES INSURERS STANDARDS LABOR LOANS FARMERS RISK SHARING FAMINE REINSURANCE MARKETS CASH TRANSFERS INSURANCE COVERAGE MORTALITY EFFICIENCY COVARIATE SHOCKS MINIMUM WAGES ADMINISTRATIVE COSTS FEMALE LABOR AGRICULTURAL POLICY INVESTMENT DECISIONS EXPENDITURE INSURANCES REINSURANCE EQUITY INFANT MORTALITY PRODUCTIVITY GROWTH WAGES POVERTY INDEX POLICIES DROUGHT RUNNING WATER MARKET FAILURES PRODUCTION OF CASH CROPS VALUE LAND QUALITY LOSSES RURAL LEVEL CREDIT INSURANCE CONTRACTS AGRICULTURAL INSURANCE CLAIMS RURAL POVERTY RURAL SETTINGS RISK EXPOSURE IMPLICIT CONTRACTS AGRICULTURAL LAND MALNUTRITION RURAL LAND SIZE MARKET TRANSFER PROGRAMS RISK TRANSFER ECONOMICS MANAGEMENT INSURANCE INSURANCE PREMIUMS LOSS CONSUMPTION SMOOTHING THEORY DURABLE LACK OF INFRASTRUCTURE INVESTMENT EXTREME POVERTY IRRIGATION RISK INCOME SMOOTHING INDEMNITY RURAL AREAS POVERTY PRIVATE INSURANCE COMPANIES FEMALE LABOR FORCE SUPPLY RISK TAKING PROFIT FINANCIAL SUPPORT AGRICULTURAL PRODUCTIVITY INVESTMENTS RISK MANAGEMENT CASH TRANSFER PROGRAMS POOR INSURANCE COMPANIES COMMUNAL LAND INDEMNITY PAYMENTS OUTCOMES BASIS RISK COVERAGE GUARANTEE ADVERSE SELECTION PREMIUMS
Online Access:	http://documents.worldbank.org/curated/en/2016/02/25927053/drought-retribution-evidence-large-scale-rainfall-indexed-insurance-program-mexico http://hdl.handle.net/10986/23902

id	okr-10986-23902
recordtype	oai_dc
spelling	okr-10986-239022021-04-23T14:04:18Z Drought and Retribution : Evidence from a Large-Scale Rainfall-Indexed Insurance Program in Mexico Fuchs, Alan Wolff, Hendrik RISKS HOUSEHOLD SURVEY RISK SHARING ARRANGEMENTS RIGHTS POOR RURAL HOUSEHOLD CHECKS PRODUCTION RISK MANAGEMENT STRATEGIES POVERTY LEVELS ILLITERACY INCOME INTEREST AGRICULTURAL PRODUCTION PROPERTY RIGHTS EXCHANGE AGRICULTURAL DEVELOPMENT COUNTERFACTUAL PROGRAMS INFORMATION LABOR FORCE POLITICAL ECONOMY INSURANCE POLICIES EFFECTS INCENTIVES DURABLE ASSETS PRIVATE INSURANCE REAL INCOME CROP VARIETIES RURAL POPULATION BENEFICIARIES INTERNATIONAL BANK MEASURES INSURANCE MARKET INSURANCE COMPANY POLICYHOLDERS CROP INSURANCE RURAL HOUSEHOLD RURAL HOUSEHOLDS CASH CROPS TRAINING DEVELOPMENT ECONOMICS MORAL HAZARD HOUSEHOLD HEAD INSURANCE PRODUCT AGRICULTURAL TECHNOLOGY CONTRACTS PRODUCTIVITY TRANSFERS MARKETS HOUSEHOLD INCOME ORGANIZATIONS RATES INSURERS STANDARDS LABOR LOANS FARMERS RISK SHARING FAMINE REINSURANCE MARKETS CASH TRANSFERS INSURANCE COVERAGE MORTALITY EFFICIENCY COVARIATE SHOCKS MINIMUM WAGES ADMINISTRATIVE COSTS FEMALE LABOR AGRICULTURAL POLICY INVESTMENT DECISIONS EXPENDITURE INSURANCES REINSURANCE EQUITY INFANT MORTALITY PRODUCTIVITY GROWTH WAGES POVERTY INDEX POLICIES DROUGHT RUNNING WATER MARKET FAILURES PRODUCTION OF CASH CROPS VALUE LAND QUALITY LOSSES RURAL LEVEL CREDIT INSURANCE CONTRACTS AGRICULTURAL INSURANCE CLAIMS RURAL POVERTY RURAL SETTINGS RISK EXPOSURE IMPLICIT CONTRACTS AGRICULTURAL LAND MALNUTRITION RURAL LAND SIZE MARKET TRANSFER PROGRAMS RISK TRANSFER ECONOMICS MANAGEMENT INSURANCE INSURANCE PREMIUMS LOSS CONSUMPTION SMOOTHING THEORY DURABLE LACK OF INFRASTRUCTURE INVESTMENT EXTREME POVERTY IRRIGATION RISK INCOME SMOOTHING INDEMNITY RURAL AREAS POVERTY PRIVATE INSURANCE COMPANIES FEMALE LABOR FORCE SUPPLY RISK TAKING PROFIT FINANCIAL SUPPORT AGRICULTURAL PRODUCTIVITY INVESTMENTS RISK MANAGEMENT CASH TRANSFER PROGRAMS POOR INSURANCE COMPANIES COMMUNAL LAND INDEMNITY PAYMENTS OUTCOMES BASIS RISK COVERAGE GUARANTEE ADVERSE SELECTION PREMIUMS Although weather shocks are a major source of income fluctuation, most of the world's poor lack insurance coverage against them. Absence of formal insurance contributes to poverty traps, as investment decisions are conflicted with risk management ones: risk-averse farmers tend to underinvest and produce lower yielding yet safer crops. In the past few years, weather index insurance has gained increasing attention as an effective tool to provide small-scale farmers coverage against aggregate shocks. However, there is little empirical evidence about its effectiveness. This paper studies the effect of the recently introduced rainfall-indexed insurance on farmers' productivity, risk management strategies, as well as per capita income and expenditure in Mexico. The identification strategy takes advantage of the variation across counties and across time in which the insurance was rolled-out. The analysis finds that the presence of insurance in treated counties has significant and positive effects on maize productivity. Similarly, there is a positive association between the presence of insurance in the municipality and rural households' per capita expenditure and income, although no significant relation is found between the presence of insurance and the number of hectares destined for maize production. 2016-03-09T18:26:10Z 2016-03-09T18:26:10Z 2016-02 Working Paper http://documents.worldbank.org/curated/en/2016/02/25927053/drought-retribution-evidence-large-scale-rainfall-indexed-insurance-program-mexico http://hdl.handle.net/10986/23902 English en_US Policy Research Working Paper;No. 7565 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Mexico
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	RISKS HOUSEHOLD SURVEY RISK SHARING ARRANGEMENTS RIGHTS POOR RURAL HOUSEHOLD CHECKS PRODUCTION RISK MANAGEMENT STRATEGIES POVERTY LEVELS ILLITERACY INCOME INTEREST AGRICULTURAL PRODUCTION PROPERTY RIGHTS EXCHANGE AGRICULTURAL DEVELOPMENT COUNTERFACTUAL PROGRAMS INFORMATION LABOR FORCE POLITICAL ECONOMY INSURANCE POLICIES EFFECTS INCENTIVES DURABLE ASSETS PRIVATE INSURANCE REAL INCOME CROP VARIETIES RURAL POPULATION BENEFICIARIES INTERNATIONAL BANK MEASURES INSURANCE MARKET INSURANCE COMPANY POLICYHOLDERS CROP INSURANCE RURAL HOUSEHOLD RURAL HOUSEHOLDS CASH CROPS TRAINING DEVELOPMENT ECONOMICS MORAL HAZARD HOUSEHOLD HEAD INSURANCE PRODUCT AGRICULTURAL TECHNOLOGY CONTRACTS PRODUCTIVITY TRANSFERS MARKETS HOUSEHOLD INCOME ORGANIZATIONS RATES INSURERS STANDARDS LABOR LOANS FARMERS RISK SHARING FAMINE REINSURANCE MARKETS CASH TRANSFERS INSURANCE COVERAGE MORTALITY EFFICIENCY COVARIATE SHOCKS MINIMUM WAGES ADMINISTRATIVE COSTS FEMALE LABOR AGRICULTURAL POLICY INVESTMENT DECISIONS EXPENDITURE INSURANCES REINSURANCE EQUITY INFANT MORTALITY PRODUCTIVITY GROWTH WAGES POVERTY INDEX POLICIES DROUGHT RUNNING WATER MARKET FAILURES PRODUCTION OF CASH CROPS VALUE LAND QUALITY LOSSES RURAL LEVEL CREDIT INSURANCE CONTRACTS AGRICULTURAL INSURANCE CLAIMS RURAL POVERTY RURAL SETTINGS RISK EXPOSURE IMPLICIT CONTRACTS AGRICULTURAL LAND MALNUTRITION RURAL LAND SIZE MARKET TRANSFER PROGRAMS RISK TRANSFER ECONOMICS MANAGEMENT INSURANCE INSURANCE PREMIUMS LOSS CONSUMPTION SMOOTHING THEORY DURABLE LACK OF INFRASTRUCTURE INVESTMENT EXTREME POVERTY IRRIGATION RISK INCOME SMOOTHING INDEMNITY RURAL AREAS POVERTY PRIVATE INSURANCE COMPANIES FEMALE LABOR FORCE SUPPLY RISK TAKING PROFIT FINANCIAL SUPPORT AGRICULTURAL PRODUCTIVITY INVESTMENTS RISK MANAGEMENT CASH TRANSFER PROGRAMS POOR INSURANCE COMPANIES COMMUNAL LAND INDEMNITY PAYMENTS OUTCOMES BASIS RISK COVERAGE GUARANTEE ADVERSE SELECTION PREMIUMS
spellingShingle	RISKS HOUSEHOLD SURVEY RISK SHARING ARRANGEMENTS RIGHTS POOR RURAL HOUSEHOLD CHECKS PRODUCTION RISK MANAGEMENT STRATEGIES POVERTY LEVELS ILLITERACY INCOME INTEREST AGRICULTURAL PRODUCTION PROPERTY RIGHTS EXCHANGE AGRICULTURAL DEVELOPMENT COUNTERFACTUAL PROGRAMS INFORMATION LABOR FORCE POLITICAL ECONOMY INSURANCE POLICIES EFFECTS INCENTIVES DURABLE ASSETS PRIVATE INSURANCE REAL INCOME CROP VARIETIES RURAL POPULATION BENEFICIARIES INTERNATIONAL BANK MEASURES INSURANCE MARKET INSURANCE COMPANY POLICYHOLDERS CROP INSURANCE RURAL HOUSEHOLD RURAL HOUSEHOLDS CASH CROPS TRAINING DEVELOPMENT ECONOMICS MORAL HAZARD HOUSEHOLD HEAD INSURANCE PRODUCT AGRICULTURAL TECHNOLOGY CONTRACTS PRODUCTIVITY TRANSFERS MARKETS HOUSEHOLD INCOME ORGANIZATIONS RATES INSURERS STANDARDS LABOR LOANS FARMERS RISK SHARING FAMINE REINSURANCE MARKETS CASH TRANSFERS INSURANCE COVERAGE MORTALITY EFFICIENCY COVARIATE SHOCKS MINIMUM WAGES ADMINISTRATIVE COSTS FEMALE LABOR AGRICULTURAL POLICY INVESTMENT DECISIONS EXPENDITURE INSURANCES REINSURANCE EQUITY INFANT MORTALITY PRODUCTIVITY GROWTH WAGES POVERTY INDEX POLICIES DROUGHT RUNNING WATER MARKET FAILURES PRODUCTION OF CASH CROPS VALUE LAND QUALITY LOSSES RURAL LEVEL CREDIT INSURANCE CONTRACTS AGRICULTURAL INSURANCE CLAIMS RURAL POVERTY RURAL SETTINGS RISK EXPOSURE IMPLICIT CONTRACTS AGRICULTURAL LAND MALNUTRITION RURAL LAND SIZE MARKET TRANSFER PROGRAMS RISK TRANSFER ECONOMICS MANAGEMENT INSURANCE INSURANCE PREMIUMS LOSS CONSUMPTION SMOOTHING THEORY DURABLE LACK OF INFRASTRUCTURE INVESTMENT EXTREME POVERTY IRRIGATION RISK INCOME SMOOTHING INDEMNITY RURAL AREAS POVERTY PRIVATE INSURANCE COMPANIES FEMALE LABOR FORCE SUPPLY RISK TAKING PROFIT FINANCIAL SUPPORT AGRICULTURAL PRODUCTIVITY INVESTMENTS RISK MANAGEMENT CASH TRANSFER PROGRAMS POOR INSURANCE COMPANIES COMMUNAL LAND INDEMNITY PAYMENTS OUTCOMES BASIS RISK COVERAGE GUARANTEE ADVERSE SELECTION PREMIUMS Fuchs, Alan Wolff, Hendrik Drought and Retribution : Evidence from a Large-Scale Rainfall-Indexed Insurance Program in Mexico
geographic_facet	Latin America & Caribbean Mexico
relation	Policy Research Working Paper;No. 7565
description	Although weather shocks are a major source of income fluctuation, most of the world's poor lack insurance coverage against them. Absence of formal insurance contributes to poverty traps, as investment decisions are conflicted with risk management ones: risk-averse farmers tend to underinvest and produce lower yielding yet safer crops. In the past few years, weather index insurance has gained increasing attention as an effective tool to provide small-scale farmers coverage against aggregate shocks. However, there is little empirical evidence about its effectiveness. This paper studies the effect of the recently introduced rainfall-indexed insurance on farmers' productivity, risk management strategies, as well as per capita income and expenditure in Mexico. The identification strategy takes advantage of the variation across counties and across time in which the insurance was rolled-out. The analysis finds that the presence of insurance in treated counties has significant and positive effects on maize productivity. Similarly, there is a positive association between the presence of insurance in the municipality and rural households' per capita expenditure and income, although no significant relation is found between the presence of insurance and the number of hectares destined for maize production.
format	Working Paper
author	Fuchs, Alan Wolff, Hendrik
author_facet	Fuchs, Alan Wolff, Hendrik
author_sort	Fuchs, Alan
title	Drought and Retribution : Evidence from a Large-Scale Rainfall-Indexed Insurance Program in Mexico
title_short	Drought and Retribution : Evidence from a Large-Scale Rainfall-Indexed Insurance Program in Mexico
title_full	Drought and Retribution : Evidence from a Large-Scale Rainfall-Indexed Insurance Program in Mexico
title_fullStr	Drought and Retribution : Evidence from a Large-Scale Rainfall-Indexed Insurance Program in Mexico
title_full_unstemmed	Drought and Retribution : Evidence from a Large-Scale Rainfall-Indexed Insurance Program in Mexico
title_sort	drought and retribution : evidence from a large-scale rainfall-indexed insurance program in mexico
publisher	World Bank, Washington, DC
publishDate	2016
url	http://documents.worldbank.org/curated/en/2016/02/25927053/drought-retribution-evidence-large-scale-rainfall-indexed-insurance-program-mexico http://hdl.handle.net/10986/23902
_version_	1764455104886341632

Drought and Retribution : Evidence from a Large-Scale Rainfall-Indexed Insurance Program in Mexico

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