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An Integrated Risk Assessment Model for the Implementation of Drought Insurance Markets in Spain

Author

Listed:
  • Carlos Dionisio Pérez Blanco

    (University of Alcalá de Henares and Madrid Institute for Advanced Studies in Water Technologies (IMDEA-Water))

  • Carlos Mario Gómez Gómez

    (University of Alcalá de Henares and Madrid Institute for Advanced Studies in Water Technologies (IMDEA-Water))

Abstract

Water is a key input in the production of many goods and services and under certain conditions can become a critical limiting factor with significant impacts on regional development. This is the case of many agricultural European Mediterranean basins, where water deficit during drought events is partially covered by illegal abstractions, mostly from aquifers, which are tolerated by the authorities. Groundwater overexploitation for irrigation has created in these areas an unprecedented environmental catastrophe that threatens ecosystems sustainability, urban water supply and the current model of development. Market-based drought insurance systems have the potential to introduce the necessary incentives to reduce overexploitation during drought events and remove the high costs of the drought indemnity paid by the government. This paper develops a methodology to obtain the optimum risk premium based on concatenated stochastic models. The methodology is applied to the agricultural district of Campo de Cartagena (Segura River Basin, Spain). Results show that the prices in a hypothetic competitive private drought insurance market would be reasonable and the expected environmental outcomes significant.

Suggested Citation

  • Carlos Dionisio Pérez Blanco & Carlos Mario Gómez Gómez, 2014. "An Integrated Risk Assessment Model for the Implementation of Drought Insurance Markets in Spain," Working Papers 2014.62, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2014.62
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    References listed on IDEAS

    as
    1. Saleth, R. Maria & Dinar, Ariel, 1999. "Water challenge and institutional response (a cross-country perspective)," Policy Research Working Paper Series 2045, The World Bank.
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    3. Martin, Steven W. & Barnett, Barry J. & Coble, Keith H., 2001. "Developing And Pricing Precipitation Insurance," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(1), pages 1-14, July.
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    Cited by:

    1. Mohor, Guilherme Samprogna & Mendiondo, Eduardo Mario, 2017. "Economic indicators of hydrologic drought insurance under water demand and climate change scenarios in a Brazilian context," Ecological Economics, Elsevier, vol. 140(C), pages 66-78.

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    More about this item

    Keywords

    Drought Insurance; Stochastic Models; Groundwater; Agriculture; Drought Contingency Plan;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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