Poverty Traps and Climate Risk: Limitations and Opportunities of Index-Based Risk Financing

IRI Technical Report No. 07-02

56 Pages Posted: 26 Jun 2008

See all articles by Christopher B. Barrett

Christopher B. Barrett

Cornell University - Charles H. Dyson School of Applied Economics & Management

Barry J. Barnett

University of Georgia - Department of Agricultural & Applied Economics

Michael R. Carter

University of Wisconsin - Madison - Department of Agricultural & Applied Economics

Sommarat Chantarat

Australian National University - Crawford School of Economics and Government

James W. Hansen

Columbia University

Andrew G. Mude

Cornell University - Department of Economics

Daniel Osgood

Columbia University

Jerry R. Skees

University of Kentucky - College of Agriculture - Department of Agricultural Economics

Calum G. Turvey

Cornell University - School of Applied Economics and Management

M. Neil Ward

affiliation not provided to SSRN

Date Written: September 2007

Abstract

The objective of this paper is to frame the key issues and summarize the current state of knowledge about and innovations in index-based risk transfer products (IBRTPs) as they relate to the management of climate risk for poverty reduction, especially of chronic or persistent poverty. In the past several years, interest in and experimentation with weather index insurance and other IBRTPs has grown rapidly. Though no one should expect that these innovations alone can solve the problem of chronic poverty, index-based financing opens up a range of intriguing possibilities.

The remainder of this paper is comprised of five major sections that discuss: 1) how weather risks and climate shocks impact the poor in developing countries; 2) the concept of poverty traps, highlighting how conventional risk management strategies typically do not work well for managing covariate weather risk; 3) the limitations and opportunities of financial innovations using index-based risk transfer products (IBRTPs) for reducing or transferring weather risks and climate shocks; 4) a poverty traps-based typology of IBRTPs; 5) key remaining challenges in developing and implementing index-based risk financing for use in the global struggle to end chronic poverty.

Suggested Citation

Barrett, Christopher B. and Barnett, Barry J. and Carter, Michael R. and Chantarat, Sommarat and Hansen, James W. and Mude, Andrew G. and Osgood, Daniel and Skees, Jerry R. and Turvey, Calum G. and Ward, M. Neil, Poverty Traps and Climate Risk: Limitations and Opportunities of Index-Based Risk Financing (September 2007). IRI Technical Report No. 07-02. Available at SSRN: https://ssrn.com/abstract=1141933 or http://dx.doi.org/10.2139/ssrn.1141933

Christopher B. Barrett (Contact Author)

Cornell University - Charles H. Dyson School of Applied Economics & Management ( email )

315 Warren Hall
Ithaca, NY 14853-7801
United States
607-255-4489 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://aem.cornell.edu/faculty_sites/cbb2/

Barry J. Barnett

University of Georgia - Department of Agricultural & Applied Economics ( email )

Athens, GA 30602-7509
United States

Michael R. Carter

University of Wisconsin - Madison - Department of Agricultural & Applied Economics ( email )

427 Lorch St.
Madison, WI 53706-1503
United States
608-263-2478 (Phone)

Sommarat Chantarat

Australian National University - Crawford School of Economics and Government ( email )

7107 Coombs Building
Canberra, ACT 0200
Australia
612 6125 3756 (Phone)
612 6125 3700 (Fax)

HOME PAGE: http://www.schantarat.com

James W. Hansen

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Andrew G. Mude

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

Daniel Osgood

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Jerry R. Skees

University of Kentucky - College of Agriculture - Department of Agricultural Economics ( email )

Rm 310, Agricultural Engineering Bldg.
Lexington, KY 40546
United States
606-257-7262 (Phone)
606-257-7290 (Fax)

Calum G. Turvey

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

M. Neil Ward

affiliation not provided to SSRN

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