Demand for Complementary Financial and Technological Tools for Managing Drought Risk

Patrick S. Ward, David J. Spielman, David L. Ortega, Neha Kumar, Sumedha Minocha
2015 Social Science Research Network  
Financial and technological innovations that mitigate weather-related production risks have the potential to greatly benefit farmers in many risk-prone areas. In this study we examine farmers' preferences for two distinct tools that allow them to manage drought risk: weather index insurance and a recently released drought-tolerant rice variety. We illustrate how these tools can independently address drought risk and demonstrate the additional benefits gained by combining them into a
more » ... into a complementary risk management product. Findings indicate that farmers are generally unwilling to adopt the drought-tolerant variety independent of insurance, largely due to a yield penalty under non-drought conditions. When bundled with insurance, however, farmers' valuation of the variety increases. Farmers value insurance on its own, but even more so when bundled with the drought-tolerant variety. The results provide evidence that farmers value the complementarities inherent in a well-calibrated bundle of risk management tools.
doi:10.2139/ssrn.2591563 fatcat:cptu5dxczjfmzi67hvyfopxy5q