New Journal Paper on Demand for a labor-based drought insurance scheme in Ethiopia

  • West Hararghe region, Ethiopia, December 2015. Some 10.2 million people are food insecure amidst one of the worst droughts to hit Ethiopia in decades.
    WFP/Stephanie Savariaud

The paper "Demand for a labor-based drought insurance scheme in Ethiopia: a stated choice experiment approach" written by Million A. Tadesse, Frode Alfnes, Olaf Erenstein, Stein T. Holden has been published in Agricultural Economics.

New Journal Paper on Demand for a labor-based drought insurance scheme in Ethiopia

The paper is published as a New Journal Paper and can be downloaded here.

Abstract of the paper
Index-based weather insurance is increasingly used to manage weather-related risks in smallholder agriculture. However, cash-constrained smallholders often lack the resources to pay an insurance premium, which may undermine its wider adoption.

This article investigates alternative insurance payment methods that may help to enhance the adoption of index-based weather insurance. We use a choice experiment to elicit smallholders’ willingness to pay in cash or labor for index-based weather insurance in four districts in the south-central highlands of Ethiopia.

The insurance schemes were created using a fractional factorial design with three factors: work, cash, and payout rate. We analyze the choice data using a random parameter mixed logit model. We find that the average participants need a subsidy to pay cash for insurance because their willingness to pay is less than the expected cost of the insurance. On average, they are willing to pay only 0.81 ETB (Ethiopian currency) to get an expected yearly payout of 1 ETB. However, most are willing to participate in work-for-insurance programs at lower daily wage rates than is common for other work programs in Ethiopia.

Published 2. January 2017 - 11:29 - Updated 23. May 2017 - 19:10