Innovative tools to address drought risk in grazing lands

Báez Barraza, Karen Alejandra and Iglesias Martínez, Eva (2011). Innovative tools to address drought risk in grazing lands. In: "XIII International Congress European Association of Agricultural Economists", 30/08/2011 - 02/09/2011, Zurich, Suiza.

Description

Title: Innovative tools to address drought risk in grazing lands
Author/s:
  • Báez Barraza, Karen Alejandra
  • Iglesias Martínez, Eva
Item Type: Presentation at Congress or Conference (Article)
Event Title: XIII International Congress European Association of Agricultural Economists
Event Dates: 30/08/2011 - 02/09/2011
Event Location: Zurich, Suiza
Title of Book: Proceedings of XIII International Congress European Association of Agricultural Economists
Date: 2011
Subjects:
Faculty: E.T.S.I. Agrónomos (UPM) [antigua denominación]
Department: Economía y Ciencias Sociales Agrarias [hasta 2014]
Creative Commons Licenses: Recognition - No derivative works - Non commercial

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Abstract

Drought spells can impose severe impacts in most vulnerable farms. It is well known that uninsured exposure exacerbates income inequality in farming systems. However, high administrative costs of traditional insurance hinder small farmers? access to risk management tools. The existence of moral hazard and systemic risk prevents the implementation of traditional insurance programs to address drought risk in rural areas. Innovative technologies like satellite images are being used to derive vegetation index which are highly correlated with drought impacts. The implementation of this technology in agricultural insurance may help to overcome some of the limitations of traditional insurance. However, basis risk has been identified as one of the main problems that hinder the acceptance of index insurance. In this paper we focus on the analyses of basis risk under different contract options in the grazing lands of the Araucanía region. A vegetation index database is used to develop an actuarial insurance model and estimate risk premiums for moderate and severe drought coverage. Risk premium sharply increases with risk coverage. In contrast with previous findings in the literature, our results are not conclusive and show that lowering the coverage level does not necessarily imply a reduction in basis risk. Further analyses of the relation between contract design and basis risk is a promising area of research that may render an important social utility for most vulnerable farming systems.

More information

Item ID: 11436
DC Identifier: http://oa.upm.es/11436/
OAI Identifier: oai:oa.upm.es:11436
Deposited by: Memoria Investigacion
Deposited on: 24 Jul 2012 12:19
Last Modified: 20 Apr 2016 19:30
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