Research

Designing Purely Weather-Contingent Crop Insurance with Personalized Coverage to Improve Farmers’ Investments in their Crops for Higher Yields

Abstract

 

Crop cultivation worldwide is highly vulnerable to unfavorable weather.  In developing countries, farmers bear the financial burden of their crops’ exposure to weather ravages, the extent of which will only increase due to the effects of climate change.   This causes farmers in these areas to minimize their financial risks by avoiding crop investments that do not have assured results.  As a result, they rely on low-risk, low-yield cultivation practices that do not allow for the food and financial gains that can be possible when favorable weather supports higher yields.  Crop insurance can shield farmers from some weather-related risk, and encourages investment in higher yielding cultivation practices.  Unfortunately, existing insurance products in developing countries are either prohibitively expensive or do not provide accurate compensation for farmers’ losses, and many farmers choose not to participate.

This research team seeks to make crop insurance more accessible and affordable for farmers in developing regions through by developing a new system of insurance pricing and payoff schedules that takes into account the widely varying ways through which weather affects crop’s development and yield throughout the growth cycle.   To do this, the research team will design an algorithm that can accommodate the multiplicity of cultivation choices and yields for a given weather history in order to provide personalizable and purely weather-contingent coverage.  They will begin by focusing on rice farmers in Thailand, using country-wide census data to estimate and test the algorithm.  They will also use this test case to evaluate the effectiveness of the tool to protect farmers from weather fluctuations, including projected weather conditions under future climate scenarios.   Their goal is to provide a new, personalized insurance tool that improves farmers’ ability to protect their yields, invest in their crops, and adapt to climate change in order to stabilize food supply worldwide.

Supported throuh a grant from the Abdul Latif Jameel Water and Food Systems Lab (J-WAFS) at MIT.

Photo courtesy of the Asian Development Bank.

Online Appendix for "Distributed Ledgers"

Online Appendix to the article by Robert M. Townsend (2019), "Distributed Ledgers: Innovation and Regulation in Financial Infrastructure and Payment Systems." This appendix contains links to the literature underpinning the model used in the paper.

Consortium on Financial Systems and Poverty

The Consortium oversees the development of a growing body of research that seeks to put financial services for the poor, with an emphasis on the impact of savings, second generation banking, and policy, on a firm empirical and theoretical foundation and serves as a reliable guide to effective action. It is composed of top-tier researchers across a variety of institutions who work to understand the impact of financial products, the macro and micro policies that are associated with financial access, and technological innovations in financial service delivery.

The Enterprise Initiative

The Enterprise Initiative is a research program that supports rigorous methods to examine the complex process of wealth creation and the role of enterprise in alleviating poverty. The Initiative explores entrepreneurship in developing economies through the lens of Applied General Equilibrium Enterprise Economics. Using analytic economic modeling, researchers closely study human entrepreneurial talent and the attitudes that contribute to economic success, not only at the individual level but also at the village, regional and national levels. This collaborative research initiative brings together researchers and faculty from a variety of subfields at the University of Chicago, MIT and Yale University.