Skip to content

Category: Agriculture

Published May 20, 2013

Managing Basis Risk with Multiscale Index Insurance

That’s the title of my article with Ghada Elabed, Michael Carter, and Catherine Guirkinger, which was just published online in Agricultural Economics. Here is the abstract:

Agricultural index insurance indemnifies a farmer against losses based on an index that is correlated with, but not identical to, her or his individual outcomes. In practice, the level of correlation may be modest, exposing insured farmers to residual, basis risk. In this article, we study the impact of basis risk on the demand for index insurance under risk and compound risk aversion. We simulate the impact of basis risk on the demand for index insurance by Malian cotton farmers using data from field experiments that reveal the distributions of risk and compound risk aversion. The analysis shows that compound risk aversion depresses demand for a conventional index insurance contract some 13 percentage points below what would be predicted based on risk aversion alone. We then analyze an innovative multiscale index insurance contract that reduces basis risk relative to conventional, single-scale index insurance contract. Simulations indicate that demand for this multiscale contract would be some 40% higher than the demand for an equivalently priced conventional contract in the population of Malian cotton farmers. Finally, we report and discuss the actual uptake of a multiscale contract introduced in Mali.

The article discusses the index insurance contract my coauthors and I have developed for and sold to cotton producer cooperatives in southern Mali. The rest of this post is more technical, as it goes into the details of the two contributions I’ve highlighted above.

Continue readingManaging Basis Risk with Multiscale Index Insurance
Published May 15, 2013

Yes to Land Rights, but Land Titles Are No Silver Bullet

Some economists argue that ensuring people have titles to their land can ensure a feeling of security and boost production. … The greatest proponent of the argument is Hernando de Soto, a development economist who has managed to win praise from the likes of Bill Clinton and the libertarian Cato Institute.

There is plenty of evidence that land rights are connected to productivity, but new research out of Madagascar shows that it is not always the case.

Duke University researcher Marc F. Bellemare tested whether the land rights component of a $100 million Millennium Challenge Corporation (MCC) compact with the government of Madagascar. He found that the provision of formal land rights, meaning land titles, had not measurable impact on productivity when comparing farmers that did and did not benefit from the MCC compact.

Holding a land title is not sufficient if structures are not in place to enforce land ownership and dole it out.

From a very nice article by Tom Murphy on Humanosphere, which discusses the policy implications of my forthcoming Land Economics article on land rights in Madagascar.

Continue readingYes to Land Rights, but Land Titles Are No Silver Bullet
Published May 14, 2013

Getting Food Aid Right

How many of us read a story of disaster striking people half a world away and respond by getting out our checkbooks?  Tens of millions of us in any given year, and Americans are especially generous. Relief agencies received more than $1.2 billion in the wake of the disastrous 2010 earthquake in Haiti and $3.9 billion following the 2004 Indian Ocean tsunami.  But is anyone foolish enough to go to the local grocery store, buy food and ship it to communities devastated by disaster? Of course not. That would cost much more, take too long to reach people in need, risk spoilage in transit, and likely not provide what is most needed.

Yet with only minor oversimplification, this is precisely what our government’s food aid programs have done since 1954. Our main international food aid programs are authorized through the Farm Bill and must purchase food in, and ship it from, the United States. This system was originally designed to dispose of surpluses the government acquired under farm price support programs that ended decades ago.  These antiquated rules continue today thanks to political inertia in Washington.

As a result, only 40 cents of each taxpayer dollar spent on international food aid actually buys the commodities hungry people eat; the rest goes to shipping and administrative costs. And the median time to deliver emergency food aid is nearly five months. We can do better.

From a longer piece by my friend and frequent coauthor Chris Barrett on CNN’s Global Public Square blog. Chris is also the author with Dan Maxwell of what is without a doubt the best book anyone can read on food aid.