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Evaluating the Potential of Index Insurance Schemes to Reduce Crop Yield Risk in an Arid Region

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  • Gunnar Breustedt
  • Raushan Bokusheva
  • Olaf Heidelbach

Abstract

We evaluate yield risk reduction through weather index, area yield index and farm yield insurance contracts for wheat farms in Kazakhstan by employing data from 1980 to 2002. We use the usual mean variance (MV) approach and also a second‐degree stochastic dominance (SSD) criterion. While MV is not necessarily consistent with the expected utility (EU) theory, SSD results only in a minimum but EU‐consistent benefit from insuring. Differences in the estimation results for both approaches underline the advantage of applying both criteria to analyse the risk‐reducing potential of crop insurance. Bootstrapping results show that none of the analysed insurance schemes provides statistically significant risk reduction for every single farm. In addition, weather‐based index insurance is found to provide less risk reduction than area yield insurance based on the rayon (county) yield. Moreover, rayon yield index insurance can reduce yield risk more effectively for Kazakhstan's wheat producers than farm yield insurance with a low strike yield.

Suggested Citation

  • Gunnar Breustedt & Raushan Bokusheva & Olaf Heidelbach, 2008. "Evaluating the Potential of Index Insurance Schemes to Reduce Crop Yield Risk in an Arid Region," Journal of Agricultural Economics, Wiley Blackwell, vol. 59(2), pages 312-328, June.
    • Handle: RePEc:bla:jageco:v:59:y:2008:i:2:p:312-328
    DOI: 10.1111/j.1477-9552.2007.00152.x
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    References listed on IDEAS

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    1. Brosig, Stephan & Yahshilikov, Yorbol, 2005. "Interregional integration of wheat markets in Kazakhstan [Interregionale Integration von Weizenmärkten in Kasachstan]," IAMO Discussion Papers 88, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    2. Karuaihe, Raphael N. & Wang, H. Holly & Young, Douglas L., 2006. "Weather-Based Crop Insurance Contracts for African Countries," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25378, International Association of Agricultural Economists.
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