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Pitfalls and potential of institutional change: Rain-index insurance and the sustainability of rangeland management

Author

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  • Birgit Müller

    (Department of Ecological Modelling, UFZ, Helmholtz Centre for Environmental Research - UFZ, Leipzig, Germany)

  • Martin Quaas

    (Department of Economics, University of Kiel, Germany)

  • Karin Frank

    (Department of Ecological Modelling, UFZ, Helmholtz Centre for Environmental Research - UFZ, Leipzig, Germany)

  • Stefan Baumgärtner

    (Department of Sustainability Sciences, Leuphana University of Lüneburg, Germany)

Abstract

Rain-index insurance is strongly advocated in many parts of the developing world to help farmers to cope with climatic risk that prevail in (semi-)arid rangelands due to low and highly uncertain rainfall. We present a modeling analysis of how the availability of rain-index insurance affects the sustainability of rangeland management. We show that a rain-index insurance with frequent payo s, i.e. a high strike level, leads to the choice of less sustainable grazing management than without insurance available. However, a rain-index insurance with a low to medium strike level enhances the farmer's well-being while not impairing the sustainability of rangeland management.

Suggested Citation

  • Birgit Müller & Martin Quaas & Karin Frank & Stefan Baumgärtner, 2009. "Pitfalls and potential of institutional change: Rain-index insurance and the sustainability of rangeland management," Working Paper Series in Economics 149, University of Lüneburg, Institute of Economics.
    • Handle: RePEc:lue:wpaper:149
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    3. Sherren, Kate & Fischer, Joern & Fazey, Ioan, 2012. "Managing the grazing landscape: Insights for agricultural adaptation from a mid-drought photo-elicitation study in the Australian sheep-wheat belt," Agricultural Systems, Elsevier, vol. 106(1), pages 72-83.
    4. Justin Derner & David Briske & Matt Reeves & Tami Brown-Brandl & Miranda Meehan & Dana Blumenthal & William Travis & David Augustine & Hailey Wilmer & Derek Scasta & John Hendrickson & Jerry Volesky &, 2018. "Vulnerability of grazing and confined livestock in the Northern Great Plains to projected mid- and late-twenty-first century climate," Climatic Change, Springer, vol. 146(1), pages 19-32, January.
    5. Qing Sun & Zaiqiang Yang & Xianghong Che & Wei Han & Fangmin Zhang & Fang Xiao, 2018. "Pricing weather index insurance based on artificial controlled experiment: a case study of cold temperature for early rice in Jiangxi, China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 91(1), pages 69-88, March.
    6. John, Felix & Toth, Russell & Frank, Karin & Groeneveld, Jürgen & Müller, Birgit, 2019. "Ecological Vulnerability Through Insurance? Potential Unintended Consequences of Livestock Drought Insurance," Ecological Economics, Elsevier, vol. 157(C), pages 357-368.
    7. Bhattacharya, Haimanti & Osgood, Daniel E., 2014. "Weather Index Insurance and Common Property Resources," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 0, pages 1-13.
    8. Bhattacharya, Haimanti & Osgood, Daniel E., 2014. "Weather Index Insurance and Common Property Resources," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 43(3), pages 1-13, December.
    9. Schlüter, Maja & Baeza, Andres & Dressler, Gunnar & Frank, Karin & Groeneveld, Jürgen & Jager, Wander & Janssen, Marco A. & McAllister, Ryan R.J. & Müller, Birgit & Orach, Kirill & Schwarz, Nina & Wij, 2017. "A framework for mapping and comparing behavioural theories in models of social-ecological systems," Ecological Economics, Elsevier, vol. 131(C), pages 21-35.
    10. Martínez-Valderrama, J. & Ibáñez, J. & Ibáñez, M.A. & Alcalá, F.J. & Sanjuán, M.E. & Ruiz, A. & del Barrio, G., 2021. "Assessing the sensitivity of a Mediterranean commercial rangeland to droughts under climate change scenarios by means of a multidisciplinary integrated model," Agricultural Systems, Elsevier, vol. 187(C).
    11. Pengfei Liu & Lingling Hou & Dongqing Li & Shi Min & Yueying Mu, 2021. "Determinants of Livestock Insurance Demand: Experimental Evidence from Chinese Herders," Journal of Agricultural Economics, Wiley Blackwell, vol. 72(2), pages 430-451, June.
    12. Engler, John-Oliver & von Wehrden, Henrik, 2018. "Global assessment of the non-equilibrium theory of rangelands: Revisited and refined," Land Use Policy, Elsevier, vol. 70(C), pages 479-484.
    13. Aaron De Laporte & Daniel Schuurman & Tristan Skolrud & Peter Slade & Alfons Weersink, 2024. "Business risk management programs and the adoption of beneficial management practices in Canadian crop agriculture," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 72(3), pages 309-324, September.

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    More about this item

    Keywords

    ecological-economic modeling; weather-index insurance; Namibia; grazing management; risk; sustainability; weather-based derivatives;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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