Hot stuff: Index Insurance for Indian Pepper Growers

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    We simulate the impact of a joint price and yield index insurance on the basis of a small representative panel data set of Indian smallholder pepper growers. Affordable and feasible index insurance reduces crop revenue risk to around 68% of its original level, while a reduction to 50% of this level can be achieved with ideal insurance. Basis risk is large for only a small fraction of farm households. Depending on risk aversion 5-30% of farm households is willing to pay for index insurance, increasing to 12-50% with a 50% premium reduction. Opportunity costs of consumption smoothing in the form of lower productivity levels suggest potential welfare gains of specialization with insurance. © 2008 Elsevier Ltd. All rights reserved.
    Original languageEnglish
    Pages (from-to)1585-1606
    Number of pages22
    JournalWorld Development
    Issue number9
    Publication statusPublished - 2008

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