Handling the Weather : Insurance, Savings, and Credit in West Africa

Farmers in developing countries face a wide array of risks. Yet they often lack formal financial instruments to protect against risks. This paper examines the impact on consumption, investment, and welfare of the separate provision of three financial products: weather insurance, savings, and credit. The paper develops a dynamic stochastic mode to capture the essential features of the lives of West African rural households. The model is calibrated with data from farmers in Burkina Faso and Senegal, to assess quantitatively the effects of three policy interventions. For each intervention the analysis first considers a benchmark scenario that abstracts from the flaws that affect each instrument; later the assumptions are relaxed. Weather insurance offers the largest welfare gains at each level of wealth, although the gains are significantly reduced by introducing a multiple on the insurance premium. Over time, however, savings can lead to substantial gains, higher than those achievable by unsubsidized weather insurance.

Bibliographic Details

Main Author:	de Nicola, Francesca
Format:	Publications & Research biblioteca
Language:	English en_US
Published:	World Bank Group, Washington, DC 2015-02
Subjects:	ACCESS TO INSURANCE, ADMINISTRATIVE COSTS, ADVERSE SELECTION, AGRICULTURAL ECONOMICS, AGRICULTURAL INSURANCE, AGRICULTURAL LOAN, AGRICULTURAL SHOCKS, AGRICULTURE, ALLOCATION, ALLOCATION OF CAPITAL, AMOUNT OF DEBT, AMOUNT OF LOAN, AVAILABILITY OF CREDIT, BANKING MARKETS, BANKS, BENCHMARK, BEQUEST, BORROWING, CAPITAL INVESTMENTS, CAPITAL SHARE, CLIMATE, CONSUMPTION SMOOTHING, COST OF INSURANCE, CREDIT CONTRACT, CROP LOSSES, DEBT, DEBT FORGIVENESS, DEFAULT RISK, DEFLATION, DEPOSIT, DEPOSIT INTEREST, DEVELOPING COUNTRIES, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DISCOUNT FACTOR, DISCOUNTED VALUE, DYNAMIC MODEL, EARNING ASSETS, ECONOMIC DEVELOPMENT, EXTREME WEATHER, EXTREME WEATHER EVENT, FAIR PRICE, FINANCIAL INSTRUMENT, FINANCIAL INSTRUMENTS, FINANCIAL MARKETS, FINANCIAL PRODUCTS, FINANCIAL RISK, FREE ASSET, FREE ASSETS, FUNGIBLE, FUTURE CONSUMPTION, GDP, HOLDING, HOUSEHOLD INCOME, INCENTIVE EFFECTS, INCOME SHOCKS, INCOME VOLATILITY, INCREASE IN CONSUMPTION, INFLATION, INFLATION RATES, INSTRUMENT, INSURANCE, INSURANCE CONTRACT, INSURANCE CONTRACTS, INSURANCE DESIGN, INSURANCE MARKET, INSURANCE PAYOUT, INSURANCE POLICY, INSURANCE PREMIUM, INSURANCE PRODUCT, INTEREST PAYMENT, INTEREST PAYMENTS, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL MARKETS, INVESTING, INVESTMENT CHOICES, INVESTMENT DECISIONS, INVESTMENT PATTERNS, LENDING PORTFOLIOS, LIABILITY, LIMITED LIABILITY, LIQUID ASSET, LIQUID ASSETS, LIQUIDITY, LIQUIDITY CONSTRAINTS, LIQUIDITY PROBLEMS, LIVESTOCK INSURANCE, LOAN, LOAN CONTRACT, LOAN DEFAULTS, LOAN PORTFOLIO, LOAN PORTFOLIOS, LOTTERIES, MARGINAL PRODUCTIVITY, MARGINAL UTILITY, MARGINAL UTILITY OF CONSUMPTION, MARKET EFFICIENCY, MATURE MARKET, MATURITY, MICROFINANCE, MICROFINANCE INSTITUTIONS, MICROINSURANCE, MONEYLENDERS, MORAL HAZARD, NOMINAL INTEREST RATE, OPTIMAL CONTRACT, OPTIMAL INVESTMENT, OPTIMIZATION, POLICY MAKERS, POLITICAL ECONOMY, POSSIBILITY OF DEFAULT, PRICE FLUCTUATIONS, PRICE VOLATILITY, PROBABILITY DISTRIBUTION, PROBABILITY OF DEFAULT, PRODUCTION FUNCTION, PROVISION OF CREDIT, RATE OF RETURN, REAL INTEREST, REAL INTEREST RATE, REPAYMENT, RETURN, RETURN ON INVESTMENT, RETURNS, RETURNS TO SCALE, RISK AVERSE, RISK AVERSION, RISK MANAGEMENT, RISK TAKING, RISKY ASSET, RURAL CREDIT, RURAL CREDIT MARKET, SAFER ASSET, SAVINGS, SAVINGS ACCOUNTS, SAVINGS DEPOSITS, SAVINGS INSTRUMENTS, SCENARIOS, SET ASIDE, SEVERE WEATHER, SYSTEMIC RISK, UTILITY FUNCTION, WEALTH, WEATHER INSURANCE, WELFARE ANALYSIS,
Online Access:	http://documents.worldbank.org/curated/en/2015/02/23943257/null http://hdl.handle.net/10986/21445
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