Improving index-based drought insurance in varying topography: evaluating basis risk based on perceptions of Nicaraguan hillside farmers
Date Issued
Date Online
Language
Type
Review Status
Access Rights
Metadata
Full item pageCitation
Kost A, Läderach P, Myles F, Cook SE, Gómez L. 2012. Improving index-based drought insurance in varying topography: evaluating basis risk based on perceptions of Nicaraguan hillside farmers. PLOS ONE 7(12):e51412.
Permanent link to cite or share this item
External link to download this item
Abstract/Description
This paper discusses a methodology to model precipitation indices and premium prices for index-based drought insurance for smallholders. Spatial basis risk, which is borne by the insured, is a problem, especially in variable topography. Also, site-specific drought risk needs to be estimated accurately in order to offer effective insurance cover and ensure financial sustainability of the insurance scheme. We explore farmers' perceptions on drought and spatial climate variability and draw conclusions concerning basis risk with regards to the proposed methodology. There are technically many options to represent natural heterogeneity in index insurance contracts while serving the customer adequately and keeping transaction costs low.