Five Years of Regional Risk Pooling: An Updated Cost-Benefit Analysis of the African Risk Capacity

IFPRI Discussion Paper 1965, 2020

71 Pages Posted: 18 Dec 2020

See all articles by Berber Kramer

Berber Kramer

International Food Policy Research Institute (IFPRI)

Rob Rusconi

affiliation not provided to SSRN

Joseph W. Glauber

International Food Policy Research Institute (IFPRI)

Date Written: October 21, 2020

Abstract

An initial cost-benefit analysis (CBA) of the African Risk Capacity (ARC), published in 2013, showed that regional risk pooling for severe droughts could increase benefits to poor households by as much as US$ 1.90 per dollar invested, due to the speed, cost and targeting gains from improved risk financing and contingency planning of a humanitarian response. We revisit the assumptions underpinning this initial CBA to reflect current ARC operations, and we update the CBA using new methods for evaluating the costs and benefits of regional risk pooling to finance disaster risk management. Under the revised methods and assumptions, the increase in benefits to the poor will have exceeded the costs of regional risk pooling, but not by as much as US$ 1.90 per dollar invested. This is because ARC premiums have been higher than assumed in the initial CBA, and insured countries have used ARC payouts mainly to distribute food aid, instead of leveraging state-contingent welfare schemes with potentially larger speed, cost and targeting gains. We discuss potential ways to lower premiums and strengthen the benefits to poor households, highlighting also the potential to realize welfare gains from improved risk management and investments ex ante, even during years without insurance payout.

Keywords: Africa, Africa South of Sahara, Central Africa, East Africa, North Africa, Southern Africa, West Africa, Drought, Disaster Risk Management, Cost Benefit Analysis, Risk Transfer, Mitigation, Investment, Disaster Risk Reduction

Suggested Citation

Kramer, Berber and Rusconi, Rob and Glauber, Joseph W. William, Five Years of Regional Risk Pooling: An Updated Cost-Benefit Analysis of the African Risk Capacity (October 21, 2020). IFPRI Discussion Paper 1965, 2020, Available at SSRN: https://ssrn.com/abstract=3716342

Berber Kramer (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Rob Rusconi

affiliation not provided to SSRN

Joseph W. William Glauber

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
118
Abstract Views
577
Rank
443,418
PlumX Metrics