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Index insurance for coping with drought-induced risk of production losses in French forests

Author

Listed:
  • Sandrine Brèteau-Amores

    (BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Marielle Brunette

    (BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Christophe François

    (ESE - Ecologie Systématique et Evolution - UP11 - Université Paris-Sud - Paris 11 - AgroParisTech - CNRS - Centre National de la Recherche Scientifique, AgroParisTech)

  • Antoine Leblois

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro - Montpellier SupAgro - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement)

  • Nicolas Martin-StPaul

    (URFM - Ecologie des Forêts Méditerranéennes - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

Drought-induced risk of forest dieback is increasing due to climate change. Insurance can be a good option to compensate potential financial losses associated with forest production losses. In this context, we developed an ex ante index-based insurance model to cope with drought-induced risk of forest dieback. We applied this model to beech and oak forests in France. We defined and then compared different indices from simple ones relying on rainfall indices to more complex ones relying on the functional modelling of forest sensitivity to water stress. After the calibration of the contract parameters, an insurance scheme was optimized and tested. We showed that optimal insurance contracts generate low gain of certain equivalent income, high compensation, and a high basis risk. The best contract was not proportional to the complexity of the index. There was no clear advantage to differentiate contracts based on species. Results highlighting the various perspectives of this first approach are discussed at the end of this chapter.

Suggested Citation

  • Sandrine Brèteau-Amores & Marielle Brunette & Christophe François & Antoine Leblois & Nicolas Martin-StPaul, 2021. "Index insurance for coping with drought-induced risk of production losses in French forests," Working Papers hal-03401881, HAL.
    • Handle: RePEc:hal:wpaper:hal-03401881
    Note: View the original document on HAL open archive server: https://hal.science/hal-03401881
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    References listed on IDEAS

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    1. Dai, Yongwu & Chang, Hung-Hao & Liu, Weiping, 2015. "Do forest producers benefit from the forest disaster insurance program? Empirical evidence in Fujian Province of China," Forest Policy and Economics, Elsevier, vol. 50(C), pages 127-133.
    2. Eric Nazindigouba KERE & Jérôme FONCEL & Marielle BRUNETTE, 2014. "Attitude towards Risk and Production Decision: An Empirical analysis on French private forest owners," Working Papers 201410, CERDI.
    3. Brunette, Marielle & Couture, Stéphane, 2018. "Risk management activities of a non-industrial privateforest owner with a bivariate utility function," Review of Agricultural, Food and Environmental Studies, Institut National de la Recherche Agronomique (INRA), vol. 99(3-4), November.
    4. Brunette, M. & Holecy, J. & Sedliak, M. & Tucek, J. & Hanewinkel, M., 2015. "An actuarial model of forest insurance against multiple natural hazards in fir (Abies Alba Mill.) stands in Slovakia," Forest Policy and Economics, Elsevier, vol. 55(C), pages 46-57.
    5. Harold Alderman & Trina Haque, 2007. "Insurance Against Covariate Shocks : The Role of Index-Based Insurance in Social Protection in Low-Income Countries of Africa," World Bank Publications - Books, The World Bank Group, number 6736.
    6. Brunette, Marielle & Couture, Stéphane, 2008. "Public compensation for windstorm damage reduces incentives for risk management investments," Forest Policy and Economics, Elsevier, vol. 10(7-8), pages 491-499, October.
    7. Marielle Brunette & Laure Cabantous & Stéphane Couture & Anne Stenger, 2013. "The impact of governmental assistance on insurance demand under ambiguity: a theoretical model and an experimental test," Theory and Decision, Springer, vol. 75(2), pages 153-174, August.
    8. Deng, Yiling & Munn, Ian A. & Coble, Keith & Yao, Haibo, 2015. "Willingness To Pay For Potential Standing Timber Insurance," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 47(4), pages 510-538, November.
    9. H. Fargeon & F. Pimont & N. Martin-StPaul & M. Caceres & J. Ruffault & R. Barbero & J-L. Dupuy, 2020. "Projections of fire danger under climate change over France: where do the greatest uncertainties lie?," Climatic Change, Springer, vol. 160(3), pages 479-493, June.
    10. Marielle Brunette & Stéphane Couture & Jérôme Foncel & Serge S. Garcia, 2019. "The decision to insure against forest fire risk : An econometric analysis combining hypothetical and real data," Post-Print hal-02288151, HAL.
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    Cited by:

    1. Sandrine Brèteau-Amores & Marielle Brunette & Pablo Andrés-Domenech, 2023. "A Cost Assessment of Tree Plantation Failure under Extreme Drought Events in France: What Role for Insurance?," Post-Print hal-03998594, HAL.

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    More about this item

    Keywords

    Drought; Forest; Index insurance;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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