Pitfalls and Potential of Institutional Change: Rain-Index Insurance and the Sustainability of Rangeland Management
34 Pages Posted: 9 Dec 2009 Last revised: 19 Jun 2011
Date Written: May 20, 2011
Rain-index insurance is strongly advocated in many parts of the developing world to help farmers coping with climatic risk that prevails in (semi-)arid rangelands due to low and highly uncertain rainfall. We present a modeling analysis of how the availability of rain-index insurance affects the sustainability of rangeland management. We show that a rain-index insurance with frequent payoffs, i.e. a high strike level, leads to the choice of less sustainable grazing management than without insurance available. However, a rain-index insurance with a low to medium strike level enhances the farmer's well-being while not impairing the sustainability of rangeland management.
Keywords: ecological-economic modeling, weather-index insurance, Namibia, grazing management, risk, sustainability, weather-based derivatives
JEL Classification: D81, G22, Q14, Q56, Q57
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