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Handling the Weather : Insurance, Savings, and Credit in West Africa

ACCESS TO INSURANCE ADMINISTRATIVE COSTS ADVERSE SELECTION AGRICULTURAL ECONOMICS AGRICULTURAL INSURANCE AGRICULTURAL LOAN AGRICULTURAL SHOCKS AGRICULTURE ALLOCATION ALLOCATION OF CAPITAL AMOUNT OF DEBT AMOUNT OF LOAN AVAILABILITY OF CREDIT BANKING MARKETS BANKS BENCHMARK BEQUEST BORROWING CAPITAL INVESTMENTS CAPITAL SHARE CLIMATE CONSUMPTION SMOOTHING COST OF INSURANCE CREDIT CONTRACT CROP LOSSES DEBT DEBT FORGIVENESS DEFAULT RISK DEFLATION DEPOSIT DEPOSIT INTEREST DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DISCOUNT FACTOR DISCOUNTED VALUE DYNAMIC MODEL EARNING ASSETS ECONOMIC DEVELOPMENT EXTREME WEATHER EXTREME WEATHER EVENT FAIR PRICE FINANCIAL INSTRUMENT FINANCIAL INSTRUMENTS FINANCIAL MARKETS FINANCIAL PRODUCTS FINANCIAL RISK FREE ASSET FREE ASSETS FUNGIBLE FUTURE CONSUMPTION GDP HOLDING HOUSEHOLD INCOME INCENTIVE EFFECTS INCOME SHOCKS INCOME VOLATILITY INCREASE IN CONSUMPTION INFLATION INFLATION RATES INSTRUMENT INSURANCE INSURANCE CONTRACT INSURANCE CONTRACTS INSURANCE DESIGN INSURANCE MARKET INSURANCE PAYOUT INSURANCE POLICY INSURANCE PREMIUM INSURANCE PRODUCT INTEREST PAYMENT INTEREST PAYMENTS INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL MARKETS INVESTING INVESTMENT CHOICES INVESTMENT DECISIONS INVESTMENT PATTERNS LENDING PORTFOLIOS LIABILITY LIMITED LIABILITY LIQUID ASSET LIQUID ASSETS LIQUIDITY LIQUIDITY CONSTRAINTS LIQUIDITY PROBLEMS LIVESTOCK INSURANCE LOAN LOAN CONTRACT LOAN DEFAULTS LOAN PORTFOLIO LOAN PORTFOLIOS LOTTERIES MARGINAL PRODUCTIVITY MARGINAL UTILITY MARGINAL UTILITY OF CONSUMPTION MARKET EFFICIENCY MATURE MARKET MATURITY MICROFINANCE MICROFINANCE INSTITUTIONS MICROINSURANCE MONEYLENDERS MORAL HAZARD NOMINAL INTEREST RATE OPTIMAL CONTRACT OPTIMAL INVESTMENT OPTIMIZATION POLICY MAKERS POLITICAL ECONOMY POSSIBILITY OF DEFAULT PRICE FLUCTUATIONS PRICE VOLATILITY PROBABILITY DISTRIBUTION PROBABILITY OF DEFAULT PRODUCTION FUNCTION PROVISION OF CREDIT RATE OF RETURN REAL INTEREST REAL INTEREST RATE REPAYMENT RETURN RETURN ON INVESTMENT RETURNS RETURNS TO SCALE RISK AVERSE RISK AVERSION RISK MANAGEMENT RISK TAKING RISKY ASSET RURAL CREDIT RURAL CREDIT MARKET SAFER ASSET SAVINGS SAVINGS ACCOUNTS SAVINGS DEPOSITS SAVINGS INSTRUMENTS SCENARIOS SET ASIDE SEVERE WEATHER SYSTEMIC RISK UTILITY FUNCTION WEALTH WEATHER INSURANCE WELFARE ANALYSIS
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World Bank Group, Washington, DC
Africa | West Africa
2015-02-13T18:53:49Z | 2015-02-13T18:53:49Z | 2015-02

Farmers in developing countries face a wide array of risks. Yet they often lack formal financial instruments to protect against risks. This paper examines the impact on consumption, investment, and welfare of the separate provision of three financial products: weather insurance, savings, and credit. The paper develops a dynamic stochastic mode to capture the essential features of the lives of West African rural households. The model is calibrated with data from farmers in Burkina Faso and Senegal, to assess quantitatively the effects of three policy interventions. For each intervention the analysis first considers a benchmark scenario that abstracts from the flaws that affect each instrument; later the assumptions are relaxed. Weather insurance offers the largest welfare gains at each level of wealth, although the gains are significantly reduced by introducing a multiple on the insurance premium. Over time, however, savings can lead to substantial gains, higher than those achievable by unsubsidized weather insurance.

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