Innovations for Managing Basis Risk under Index Insurance for Small Farm Agriculture

Abstract

Decades of research and observation have demonstrated that risk is economically costly in low-income agricultural economies, prompting protective self-insurance strategies that keep small farmers poor as they eschew remunerative, but risky opportunities. Making matters worse, self- and community-based insurance strategies are at best only partially effective, leaving small farm households to costly ex post coping strategies when correlated shocks hit, affecting everyone in the community. These problems are further compounded because risk itself stunts the development of rural financial markets, making it that much harder for small farmers to capitalize and move forward with new technologies and market opportunities.
Citation

Carter, M.R. "Innovations for Managing Basis Risk under Index Insurance for Small Farm Agriculture" Ferdi, Policy brief B41, September 2011