Improving Humanitarian Response to Slow-Onset Disasters Using Famine Indexed Weather Derivatives

Agricultural Finance Review, Forthcoming

35 Pages Posted: 26 Jun 2008 Last revised: 30 Nov 2013

See all articles by Sommarat Chantarat

Sommarat Chantarat

Australian National University - Crawford School of Economics and Government

Calum G. Turvey

Cornell University - School of Applied Economics and Management

Andrew G. Mude

Cornell University - Department of Economics

Christopher B. Barrett

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

Date Written: May 20, 2011

Abstract

This paper illustrates how weather derivatives indexed to forecasts of famine can be designed and used by operational agencies and donors to facilitate timely and reliable financing for effective emergency response to climate-based, slow-onset disasters such as drought. We provide a general framework for derivative contracts, especially in the context of index insurance and famine catastrophe bonds, and show how they can be used to complement existing tools and facilities in drought risk financing through a risk layering strategy. We use the case of arid lands of northern Kenya, where rainfall proves a strong predictor of widespread and severe child wasting, to provide a simple empirical illustration of the potential contract designs.

Keywords: Covariate risk, weather derivatives, catastrophe bond, famine relief, food aid, food insecurity, pastoralists, Kenya

Suggested Citation

Chantarat, Sommarat and Turvey, Calum G. and Mude, Andrew G. and Barrett, Christopher B., Improving Humanitarian Response to Slow-Onset Disasters Using Famine Indexed Weather Derivatives (May 20, 2011). Agricultural Finance Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1142508

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

Calum G. Turvey

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

248 Warren Hall
Ithaca, NY 14853
United States

Andrew G. Mude

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

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/

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