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    Improving Index-Based Drought Insurance in Varying Topography: Evaluating Basis Risk Based on Perceptions of Nicaraguan Hillside Farmers

    Access Status
    Open access via publisher
    Authors
    Kost, A.
    Läderach, P.
    Fisher, M.
    Cook, Simon
    Gómez, L.
    Date
    2012
    Type
    Journal Article
    
    Metadata
    Show full item record
    Citation
    Kost, A. and Läderach, P. and Fisher, M. and Cook, S. and 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).
    Source Title
    PLoS One
    DOI
    10.1371/journal.pone.0051412
    ISSN
    1932-6203
    School
    Department of Environment and Agriculture
    URI
    http://hdl.handle.net/20.500.11937/52891
    Collection
    • Curtin Research Publications
    Abstract

    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. © 2012 Kost et al.

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